A company has 500 units at $10 each and 300 units at $12 each. If it sells 400 u

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Question: A company has 500 units at $10 each and 300 units at $12 each. If it sells 400 units using LIFO, what is the cost of goods sold?

Options:

Correct Answer: $4,800

Solution:

Under LIFO, the cost of goods sold for the last 400 units sold is (300 * $12) + (100 * $10) = $3,600 + $1,000 = $4,600.

A company has 500 units at $10 each and 300 units at $12 each. If it sells 400 units using LIFO, what is the cost of goods sold?

A company has 500 units at $10 each and 300 units at $12 each. If it sells 400 units using LIFO, what is the cost of goods sold?

Step 1: Identify the total units available for sale. The company has 500 units at $10 each and 300 units at $12 each.
Step 2: Calculate the total number of units available: 500 + 300 = 800 units.
Step 3: Understand that LIFO means 'Last In, First Out'. This means we sell the most recently purchased items first.
Step 4: Determine how many units to sell. The company sells 400 units.
Step 5: Start selling from the most recent purchase. The last purchase was 300 units at $12 each.
Step 6: Sell all 300 units at $12 each. Calculate the cost: 300 units * $12 = $3,600.
Step 7: After selling 300 units, we still need to sell 100 more units (400 - 300 = 100).
Step 8: The next most recent purchase is 500 units at $10 each. Sell 100 units at $10 each.
Step 9: Calculate the cost for these 100 units: 100 units * $10 = $1,000.
Step 10: Add the costs together to find the total cost of goods sold: $3,600 + $1,000 = $4,600.

LIFO (Last In, First Out) – An inventory valuation method where the most recently purchased items are sold first.
Cost of Goods Sold (COGS) – The total cost of producing or purchasing the goods that a company sells during a specific period.
Inventory Valuation – The method used to value inventory, which affects the COGS and ultimately the profit reported.