A firm ended the last period with inventory of $4.0 million and a last in, first out (LIFO) reserve of $175,000. During the year, it made purchases of $2.0 million and reported sales of $5.5 million with a gross margin of 0.32. At the end of the year, it reported a LIFO reserve of $75,000. What is the value of the firm’s cost of goods sold (COGS) on a first in, first out (FIFO) basis? A) $3,740,000. B) $3,840,000. C) $3,640,000. D) $226,000,000. I may not come online for sometime. For answer, check out Question ID#: 3130 of Qbank!
C Gross Profit = $5,500,000 x .32 = $1,760,000 LIFO COGS = $5,500,000 - $1,760,000 = $3,740,000 Change LIFO Reserve = $75,000-$175,000 = -$100,000 FIFO COGS = $3,740,000 + (-$100,000) = $3,640,000 - Stillwagon
B Sales-COGS=0.32*sales --> 5500K-COGS=0.32*5500=> COGSlifo = 3740K COGSfifo = 3740-(75-175) = 3840K LIFO reserve values indicate decreasing prices --> FIFO COGS will be higher
B, declining lifo reserve means prices went down
I would say that’s more of a LIFO reserve liquidation, and it should be B.
Isn’t delta LIFO = LIFO_end - LIFO_begin?
dreary yes, implying -100,000 which means prices fell in the period meaning fifo cogs would be higher
Reconsidering - think that my math was messed up initially. FIFO COGS = LIFO COGS - Change in LIFO Reserve. Based on that, I think thunder is right - would be B and not C. -Stillwagon
But 't delta LIFO = LIFO_end - LIFO_begin = $175k - $75k ?
no, ending inventory is 75, beginning is 175
> A firm ended the last period with inventory of $4.0 million and a last in, first out (LIFO) reserve of $175,000 Ah, read that as current period!!!