Question

Lannister Inc. holds 12,000 units of inventory on January 1, 2017, which have the following costs using LIFO (last-in, first-out):
Inventory Lot Date Units Cost / Unit Total Cost
A 4/22/2012 2,000 $60 $120,000
F 10/15/2014 4,000 $84 $336,000
I 12/22/2016 6,000 $125 $750,000

Under LIFO (last-in, first-out) the same inventory has the following lot costs:
Inventory Lot Date Units Cost / Unit Total Cost
A 4/22/2012 2,000 $60 $120,000
F 10/15/2014 4,000 $84 $336,000
I 12/22/2016 6,000 $125 $750,000



During January 2017, Lannister records the following transactions:

Sells 7,000 units on January 3.
Purchases 4,000 units on January 10 at a cost of $130 per unit.
Sells 2,000 units on January 12.
Purchases 3,000 units on January 18 at a cost of $132 per unit.
Sells 2,000 units on January 25.

In answering the following questions, assume that Lannister uses a perpetual LIFO inventory system.

a. Using perpetual LIFO, what was Lannister’s cost of goods sold (COGS) for the sale that occurred on January 3?
b. Using perpetual LIFO, what Lannister’s cost of goods sold (COGS) for the sale that occurred on January 12?
c. Using perpetual LIFO, what was Lannister’s cost of goods sold (COGS) for the sale that occurred on January 25?

Answer 1

Answer:

a. Lannister’s cost of goods sold (COGS) for the sale that occurred on January 3 is $834,000.

b. Lannister’s cost of goods sold (COGS) for the sale that occurred on January 12 is $260,000

c. Lannister’s cost of goods sold (COGS) for the sale that occurred on January 25 is $264,000.

Explanation:

Perpetual last in first (LIFO) refers to an inventory costing method in which the costs of the last inventory purchased at the time of sale are used first to cost the inventory sold before applying others in order in which the inventory were purchased last.

Therefore, we have:

a. Using perpetual LIFO, what was Lannister’s cost of goods sold (COGS) for the sale that occurred on January 3?

Cost of goods sold = Cost of first 6,000 units based on the cost of 6,000 units Lot I purchased on 12/22/2016 at $125 per unit + Cost of remaining 1,000 Based the cost of Lot F purchased on 10/15/2014 at $84 per unit = $750,000 + (1,000 * $84) = $834,000

b. Using perpetual LIFO, what Lannister’s cost of goods sold (COGS) for the sale that occurred on January 12?

Cost of goods sold = Cost of the 2,000 units sold based on the cost of 4,000 Purchased on January 10 at $130 per unit = 2,000 * $130 = $260,000

c. Using perpetual LIFO, what was Lannister’s cost of goods sold (COGS) for the sale that occurred on January 25?

Cost of goods sold = Cost of the 2,000 sold on the cost of 4,000 Purchased on January 18 at $132 per unit = 2,000 * $132 = $264,000