Materials ledger card of Three Star company is give below: Materials ledger card is similar to inventory card prepared above. Solution:Īs the company uses perpetual inventory system, a materials ledger card would be prepared to compute the cost of materials issued to factory and the cost of materials on hand at the end of the month. Required: Compute the cost of material K5 issued to factory and the cost of material K5 at the end of June using last-in, first-out (LIFO) method. 30: 5 kgs of material K5 were returned from factory to store room.Ī perpetual inventory system is used to account for acquisition and issuance of direct materials. 26: 60 kgs of material K5 were issued to factory. 23: 50 kgs of material K5 were purchased $5.20/kg 19: 25 kgs of material K5 were issued to factory. 17: 50 kgs of material K5 were issued to factory. 12: 70 kgs of material K5 were purchased $5.10/kg. 09: 35 kgs of material K5 were issued to factory. 05: 10 kgs of material K5 were returned to supplier. The information about the acquisition and issuance of material K5 for the month of June is given below: Material K5 is used to manufacture product X. Three Star company manufactures product X. Consider the following example: Example 2 – LIFO perpetual system in a manufacturing company: In manufacturing companies, it is used to compute the cost of materials issued to production and cost of ending inventory of raw materials (also known as direct materials). The above example explains the use of LIFO perpetual system in a merchandising company. When LIFO method is used in a perpetual inventory system, it is typically known as “LIFO perpetual system”. LIFO perpetual inventory card (prepared above) can help compute cost of goods sold and ending inventory.Ī. Cost of goods sold (COGS) and ending inventory: Compute cost of goods sold and cost of ending inventory using LIFO method.Prepare a LIFO perpetual inventory card.01: Beginning inventory 20 units $40 per unit. The company has provided the following information about commodity DX-13C and wants your assistance in computing the cost of commodity DX-13C sold and the cost of ending inventory of commodity DX-13C. Example 1 – LIFO perpetual inventory system in a merchandising company:īZU uses perpetual inventory system to record purchases and sales and LIFO method to valuate its inventories. The following example explains the use of LIFO method for computing cost of goods sold and the cost of ending inventory in a perpetual inventory system. Like first-in, first-out (FIFO), last-in, first-out (LIFO) method can be used in both perpetual inventory system and periodic inventory system. In other words, it assumes that the cost of merchandise sold (in a merchandising company) or the cost of materials issued to production department (in a manufacturing company) is the cost of most recent purchases. Use LIFO on the following information to calculate the value of ending inventory and the cost of goods sold of March.In contrast to first-in, first-out (FIFO) method, the last-in, first-out (LIFO) method of inventory valuation assumes that the last costs incurred to purchase merchandise or direct materials are first costs charged against revenues. Let us use the same example that we used in FIFO method to illustrate the use of last-in, first-out method. Last-In, First-Out method is used differently under periodic inventory system and perpetual inventory system. This method is exactly opposite to first-in, first-out method. Thus LIFO assigns the cost of newer inventory to cost of goods sold and cost of older inventory to ending inventory account. LIFO assumes that goods which made their way to inventory (after purchase, manufacture etc.) later are sold first and those which are manufactured or acquired early are sold last. Last-In, First-Out is one of the common techniques used in the valuation of inventory on hand at the end of a period and the cost of goods sold during the period.
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