Question

NOVA Company provided the following inventory information for the year. Units Unit Cost Total Cost 1/1 Beginning Inventory 100 $2 $200 1/20 Purchase 400 $3 $1,200 7/25 Purchase 200 $4 $800 10/20 Purchase 300 $5 $1,500 1000 $3,700 A physical count of inventory on December 31 revealed that there were 300 units on hand. NOVA Company uses the LIFO method. What is the value of the ending inventory at December 31

Answer 1

Based on the fact that NOVA Company uses the LIFO method, we can calculate that the value of ending inventory is $800.

Last-In, First-Out (LIFO)

LIFO is an inventory costing method that assumes that the newer inventory is sold before the older ones.

If the ending inventory is 300 units, these units will be from the company's earlier inventory which include:

• The entire beginning inventory of 100 units costing $2 each
• 200 units from the 1/20 Purchase costing $3 each

Ending inventory is therefore:

= (100 x 2) + (200 x 3)

= 200 + 600

= $800

We can conclude that the value of ending inventory under LIFO is $800.

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