FIFO LIFO accounting question.

Question

In its first month of operations, Minh Lo Company made three purchases of merchandise in the following sequence: (1) 300 units at $28, (2) 400 units at $36, and (3) 500 units at $42. Assuming there are 400 units on hand, compute the cost of the ending inventory under:

Minh Lo uses a periodic inventory system.

a.)FIFO method______________

b.)LIFO method______________

I understand that FIFO is using unit values of ascending chronological order, ie: sept 5, sept 18, sept 25.

And LIFO is the opposite, using unit values of descending chronological order, ie: sept 25, sept 18, sept 5

However I do not know how to do this question, what does the 400 in hand have to do with it? I have only seen these problems with a sales component so you can subtract the sales from inventory and purchases to get ending inventory, then apply FIFO LIFO rules to get their respective ending inventories.

Please advise.

Answer 1

Minh Lo uses a periodic inventory system. In its first month of operations, Minh Lo Company made three purchases of merchandise in the following sequence:

(1) 300 units at $28,

(2) 400 units at $36, and

(3) 500 units at $42.

Assuming there are 400 units on hand, compute the cost of the ending inventory under:

a.)FIFO method

Under the FIFO method, the first purchases get sold first, so the 400 units on hand at the end must have come from the last purchase, so the 400 units cost $42 each. Answer: $16,800

b.)LIFO method

Under the LIFO method, the last purchases get sold first, so the 400 units on hand at the end must have come from the first two purchases, 300 units at $28 plus one more hundred at $36. Answer: $12,000.

Answer 2

She bought 1200, she still has 400, compute the cost of the 800 sold under each method.