Concept explainers
If a company has four lots of products for sale, purchase 1 (earliest) for $17, purchase 2 (middle) for $15, purchase 3 (middle) for $12, and purchase 4 (latest) for $14, which cost would be assumed to be sold first using LIFO costing?
A. $17
B. $15
C. $12
D. $14
To identify:
The cost to be allocated in case of LIFO.
Introduction:
Last In First Out is a method of evaluation of cost of goods sold. In this method, it is assumed that units purchased at last is sold first. Costs in relation with units sold are taken from cost of last lot and in case, the sold units is higher than the latest lot purchased, then cost of last second lot is used.
Answer to Problem 1MC
The correct answer is d.
Explanation of Solution
d.
In case of LIFO, cost of sold uints are taken from the last lot purchased. In case, all the units from the last lot have been sold then cost of second last stock is applied for sale units. Thus, goods costing $14 would assumed to be sold first. Therefore, option d is correct.
a.
$17, would have been used in case of FIFO. Therefore, option a is incorrect.
b.
$15 cannot be used, until fourth and third lots are sold. Therefore, option b is incorrect.
c.
$12 cannot be used, until fourth lot has been sold. Therefore, option c is incorrect.
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