Question

The Reuschel Company began 2018 with inventory of 10,000 units at a cost of $7 per unit. During 2018, 50,000 units were purchased for $8.50 each.
Sales for the year totaled 54,000 units leaving 6,000 units on hand at the end of 2018. Reuschel uses a periodic inventory system and the LIFO inventory cost method.Required:
1. Calculate cost of goods sold for 2018.
2. Calculate the effect of the LIFO on the income.

Answer 1

Answer:

See below.

Explanation:

1)

Calculating cost of goods sold by assuming periodic average.

Total cost of inventory at the beginning of 2018 = 10,000 * 7 = $70,000

Total Cost of inventory purchased during the year = 50000*8.50 = $425,000

Avg cost of inventory = 70,000 + 425,000 / 60,000 = $8.25/unit

Cost of goods sold hence, 54000*8.25 = $445,500

2)

The effect of LIFO is as follows,

Assuming out of the 54000 sales 50,000 were @ $8.50 and 4000 @ $7

so cost of goods sold then would be = $453,000

This means that LIFO will cause a negative effect  of $7500 and reduce income by this amount.

Hope that helps.