Beginning inventory, purchases, and sales data for prepaid cell phones for May are as follows:
Inventory Purchases Sales
May 1 1,550 units at $44 May 10 720 units at $45 May 12 1,200 units
20 1,200 units at $48 14 830 units
31 1,000 units
a. Assuming that the perpetual inventory system is used, costing by the LIFO method, determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 4.
b. Based upon the preceding data, would you expect the inventory to be higher or lower using the first-in, first-out method?
Answer:
a. Unit Total Unit Total Unit Total Quantity Cost Cost Quantity Cost Cost Quantity Cost Cost May 11,550 44 68,200 10 720 45 32,4001,550 44 68,200 12720 45 32,400 1,070 44 47,080 480 44 21,120 14830 44 36,520 240 44 10,560 20 1,200 48 57,600240 44 10,560 311,000 48 48,000 240 44 10,560 31 Balances138,04020,160 b. Because the prices rose from $44 for the May 1 inventory to $48 for the purchase on May 20, we would expect that under first-in, first-out, the inventory would be higher.