LIFO Perpetual Inventory
The beginning inventory at Midnight Supplies and data on purchases and sales for a three-month period ending March 31 are as follows:
Jan. 1 Inventory 7,500 $75.00 $562,500
10 Purchase 22,500 85.00 1,912,500
28 Sale 11,250 150.00 1,687,500
30 Sale 3,750 150.00 562,500
Feb. 5 Sale 1,500 150.00 225,000
10 Purchase 54,000 87.50 4,725,000
16 Sale 27,000 160.00 4,320,000
28 Sale 25,500 160.00 4,080,000
Mar. 5 Purchase 45,000 89.50 4,027,500
14 Sale 30,000 160.00 4,800,000
25 Purchase 7,500 90.00 675,000
30 Sale 26,250 160.00 4,200,000
Required:
1. Record the inventory, purchases, and cost of goods sold data in a perpetual inventory record similar to the one illustrated in Exhibit 4, using the last-in, first-out method. Under LIFO, if units are in inventory at two different costs, enter the units with the HIGHER unit cost first in the Cost of Goods Sold Unit Cost column and LOWER unit cost first in the Inventory Unit Cost column. Round unit cost to two decimal places, if necessary.
2. Determine the total sales, the total cost of goods sold, and the gross profit from sales for the period.
3. Determine the ending inventory cost as of March 31.
Feedback
1. When the perpetual inventory system is used, revenue is recorded each time a sale is made along with an entry to record the cost of the merchandise sold. LIFO means the last units purchased are assumed to be the first to be sold. Therefore after each sale, the remaining or ending inventory is made up of the first or earliest purchases. Think of your inventory in terms of "layers." The first sale comes from the most recent purchase layer. When deciding which layer to use for costing of each sale ask yourself: "Is there enough inventory left in the most recent purchase to cover the sale?" If not, the other units sold should be taken from the second most recent purchase layer, which then contains the most recent costs. Continue this process for each transaction. If you have done this problem correctly, the remaining units making up ending inventory will be costed at the January 1 beginning inventory and January 10 unit purchase price.
2. Total sales are obtained by taking the number of units sold times their sale prices for all sales and adding these amounts together. The total cost of goods sold can be obtained by adding the LIFO costs in the perpetual inventory record. Sales minus cost of goods sold equals gross profit.
3. The ending inventory is what is left after subtracting the cost of goods sold from the goods available for sale. Multiply the units remaining after the last sale by their corresponding earliest layer cost to determine the LIFO cost of the ending inventory.