# LIFO reserve

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

C

B, declining lifo reserve means prices went down

I would say that’s more of a LIFO reserve liquidation, and it should be B.

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!!!