Can you please show me the calculation of how they derived $500 for FIFO below?
ID: 2419463 • Letter: C
Question
Can you please show me the calculation of how they derived $500 for FIFO below? I thought that both would be the same.
FIFO stands for first-in, first-out. Under this method, items that go into inventory first are considered to be the items that are sold first for valuation purposes. LIFO stands for last-in, first-out. This valuation method assumes that the latest inventory items are the first sold. To illustrate the difference in methods, assume that you started your business this year with no inventory and acquired three lots of goods during the financial year. The first 1,000 units cost $3, the second lot of 1,000 cost $2 and the last lot cost $3. Prior to this year, you had no inventory. If you sold 2,500 units, your ending inventory balance per LIFO would be $1,500 and $500 under FIFO
Explanation / Answer
There is mistake in answer given .
FIFO: first in first out
total 2500 units sold
that will be from first 1000 lot, second 1000 lot and 500 from 3rd lot
endiing inventory =500*3= $1500
LIFO is also $1500