Mulligan Imports decides to use the LIFO method for the month of March. The following table shows the various purchasing transactions for the company’s Golf Elite clubs. The quantity purchased on March 1 actually reflects the inventory beginning balance.
|
Date Purchased |
Quantity Purchased |
Cost per Unit |
Units Sold |
Cost of Layer 1 |
Cost of Layer 2 |
Total Cost |
|
1-Mar |
150 |
$210 |
95 |
(55 x $210) |
$11,550 |
|
|
7-Mar |
100 |
235 |
110 |
(45 x $210) |
9,450 |
|
|
11-Mar |
200 |
250 |
180 |
(45 x $210) |
20 x $250) |
14,450 |
|
17-Mar |
125 |
240 |
125 |
(45 x $210) |
20 x $250) |
14,450 |
|
25-Mar |
80 |
260 |
120 |
(25 x $210) |
5,250 |
|
The following bullet points describe the transactions noted in the preceding table:
March 1. Mulligan has a beginning inventory balance of 150 units, and sells 95 of these units between March 1 and March 7. This leaves one inventory layer of 55 units at a cost of $210 each.
March 7. Mulligan buys 100 additional units on March 7, and sells 110 units between March 7 and March 11. Under LIFO, we assume that the latest purchase was sold first, so there is still just one inventory layer, which has now been reduced to 45 units.
March 11. Mulligan buys 200 additional units on March 11, and sells 180 units between March 11 and March 17, which creates a new inventory layer that is comprised of 20 units at a cost of $250. This new layer appears in the ta-ble in the “Cost of Layer #2” column.
March 17. Mulligan buys 125 additional units on March 17, and sells 125 units between March 17 and March 25, so there is no change in the inventory layers.
March 25. Mulligan buys 80 additional units on March 25, and sells 120 units between March 25 and the end of the month. Sales exceed purchases during this period, so the second inventory layer is eliminated, as well as part of the first layer. The result is an ending inventory balance of $5,250, which is derived from 25 units of ending inventory, multiplied by the $210 cost in the first layer that existed at the beginning of the month.