A company's inventory records report the following in November of the current year:

Beginning

November 1

5 units @ $20.

Purchase

November 2

10 @ $22

Purchase

November 6

6 @ $25

On November 8, it sold 18 units for $54 each. Using the LIFO, what amount of gross profit was earned from the 18 units sold?

$577

$562

$452

$522

Answer:Using LIFO, gross profit on 18 units sold is $562

Explanation: The Last In, First Out (LIFO) inventory costing method is one which assumes goods brought in most recently are sold first, then the one after that, and so on. It is demonstrated as follows:

The 18 units sold would be costed as

6 units bought on Nov. 6 @ $25, amounting to $150

10 units bought on Nov. 2 @ $22, amounting to $220

2 units bought on Nov. 1 @ $20, amounting to $40

Gross profit = Sales revenue - cost of goods sold

Sales revenue = 18 units * $54 = $972

Cost of goods sold = $150 + $220 + $40 = $410

Therefore, gross profit will be

$972 - $410 = $562