Question

In its first month of operations, Skysong, Inc. made three purchases of merchandise in the following sequence: (1) 320 units at $5, (2) 420 units at $7, and (3) 520 units at $8. Assuming there are 220 units on hand at the end of the period, compute the cost of the ending inventory under (a) the FIFO method and (b) the LIFO method. Skysong, Inc. uses a periodic inventory system

Answer 1

Answer:

(a) $1,760

(b) $1,100

Explanation:

Given that,

Skysong, Inc. made three purchases of merchandise:

(1) 320 units at $5

(2) 420 units at $7

(3) 520 units at $8

Units on hand at the end of the period = 220

(a) Under FIFO method,

cost of ending inventory:

= Units on hand at the end of the period × $8 (From the last purchase)

= 220 × $8

= $1,760

(b) Under LIFO method (Comprise units from the first purchase),

cost of ending inventory:

= Units on hand at the end of the period × $8 (From the first purchase)

= 220 × $5

= $1,100