Hi, Can someone explain to me where the (6 x 15) part of the solution equation is coming from? Thanks in advance. Quarter** Units Held/Purchased****Unit Cost ()****Total Cost () Opening Inventory 15 24 360 1 25 15 375 2 22 18 396 3 18 20 360 4 20 22 440 Total 100 1,931**
Given that Magna sold 12, 24, 24, and 26 units in the four quarters respectively, answer the following questions:
Given that the company uses LIFO, cost of goods sold for the third quarter under the perpetual system is closest to:
$420 $450 $426 You Answered Correctly! COGS = (18 × 20) + (6 × 15) = $450
Under perpetual LIFO, the most recent purchases (the Last In) are the first ones sold. In the 3rd Quarter they sold 24 units, but they only purchased 18 units. The most recent 18 units that they purchased during the 3rd quarter are the first ones out the door… but they didnt just sell 18 units during the quarter, they sold 24. The remaining 6 units have to come from the next most recent purchases which were from the prior quarter…or were they? The answer is no. During the Q2 they actually sold out of those ones that they purchased in Q2… so you need to go to the Q before.
So 24 units were sold.
18 Units (of the 24 units sold) were purchased in Q3 @ $20.
You would think that the 6 remaining Units (of the 24 units sold) were purchased in Q2 @ $18… BUT!!!
They already sold out of those $18 units in the prior Q! (They only bought 22 units in Q2 but they sold 24 of em… so there isn’t any of the $18 units left for you to use. in fact they dipped into the prior $15 Q here too.
so the remaining 6 must come from the Q1 at $15
This is about as tricky as I imagine the questions would be!
ValueVulture,
Thanks for the clarification. I agree; this was tricky!