Beginning inventory, purchases, and sales data for prepaid cell phones for August are as follows:

Beginning inventory, purchases, and sales data for prepaid cell phones for August are as follows:


Inventory Purchases Sales
Aug. 1 775 units at $44 Aug. 10 360 units at $45 Aug. 12 600 units
 20 600 units at $48 14 415 units
31 500 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. 
Prepaid Cell Phones
Date
Purchases Cost of Merchandise Sold Inventory
Quantity
Unit
Cost
Total
Cost Quantity
Unit
Cost
Total
Cost Quantity
Unit
Cost
Total
Cost
Aug. 1 775 44 34,100
10 360 45 16,200 775
360
44
45
34,100
16,200
12 360
240
45
44
16,200
10,560
535 44 23,540
14 415 44 18,260 120 44 5,280
20 600 48 28,800 120
600
44
48
5,280
28,800
31 500 48 24,000 120
100
44
48
5,280
4,800
31 Balances 69,020

b. Since the prices rose from $44 for the August 1 inventory to $48 for the purchase on August 20, we would expect that under first-in, first-out the inventory would be higher.