The Divine Merchandising Corporation began March operations with merchandise inv

Question

The Divine Merchandising Corporation began March operations with merchandise inventory of 6 units, each of which cost $27. During March, Divine Merchandising made the following purchases: (1) March 4, 12 units @ $28 per unit, (2) March 15, 18 units @ $30 per unit, (3) March 26, 14 units @ $32 per unit. During March the Divine Merchandising Company sold the following units at a sales price of $48 per unit: March 6, 11 units, March 20, 17 units, and March 28, 12 units. Operating expenses in March were $640. The Company estimates its income taxes expense will be approximately 35% of income before taxes.

Using the LIFO perpetual inventory method, determine the inventory dollar amount on March 31.

$320

$270

$280

$284

$480

a.

$320

b.

$270

c.

$280

d.

$284

e.

$480

Explanation / Answer

Last in First out is known as LIFO. It is a procedure of issuing coomodities for sale. Last purchased materials are issued first. So issued materials reflect current market price. Inventory includes oldest commodities purchased. Calculations are shown in the following statement.

Answer: Thus end inventory is 10 units of $284. Hence option (d) is correct.

Statement showing purchase, issue and inventory of March Purchases Sale Closing balance Dated Quantity Rate Amount quantity Rate Amount Quantity Rate Amount 1-Mar 6 27 162 4-Mar 12 28 336 6 27 162 12 28 336 18 498 6-Mar 11 28 308 6 27 162 1 28 28 11 308 7 190 15-Mar 18 30 540 6 27 162 1 28 28 18 30 540 25 730 20-Mar 17 30 510 6 27 162 1 28 28 1 30 30 17 510 8 220 26-Mar 14 32 448 6 27 162 1 28 28 1 30 30 14 32 448 22 668 28-Mar 12 32 384 6 27 162 1 28 28 1 30 30 2 32 64 12 384 10 284

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