Question

On January 1, 2007, Nichols Company’s inventory of Item X consisted of 2,000 units that cost $8 each. During 2007 the company purchased 5,000 units of Item X at $10, each, and it sold 4,500 units. Periodic inventory procedure is used. Cost of goods sold using LIFO is:

Answer 1

Answer: $45,000

Explanation:

Last In First Out (LIFO) is an inventory valuation and management method that works by selling the most recent inventory to come into the business as opposed to the earlier ones.

In the above, the most recent Inventory to come in is the 5,000 units bought at $10 each.

The 4,500 units sold will therefore come from there.

Cost of Goods Sold = Units Sold * Purchase Price

= 4,500 * $10

= $45,000