Item 51 Pair Co. sells one product and uses the last-in, first-out (LIFO) method

Question

Item 51

Pair Co. sells one product and uses the last-in, first-out (LIFO) method to determine inventory cost. Information for the month of January 2014 follows:

Pair has determined that at January 31, 20X4, the replacement cost of its inventory was $4 per unit and the net realizable value was $4.90 per unit. Pair’s normal profit margin is $1 per unit. Pair applies the lower of cost of or market rule to total inventory and records any resulting loss. At January 31, 20X4, what should be the net carrying amount of Pair’s inventory?

Multiple Choice

Units Unit Cost Beginning inventory, 1/1/14 3,000 $ 4.70 Purchases, 3/4/14 8,000 $ 3.90 Sales 7,500

Explanation / Answer

since it is given LIFO method

now 7,500 units are sold from the purchases

hence 3000 units in the inventory are left alone it their price = 3,000 * 4.7 = 14,100.

now we do have another 500 that are left in the purchases at $3.9 hence their cost = 500 * 3.9 = 1950

hence total cost would be 14100 + 1950 = 16,050

given

market replacement cost was $4

hence at $4 the cost would be 3500 * 4 = 14,000

answer : $14,000

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