The Xu Corporation uses a periodic inventory system. The company has a beginning inventory of 300 units at $5 each on January 1. Xu purchases 500 units at $4 each in February and 200 units at $6 each in March. There were no additional purchases or sales during the remainder of the year. Xu sells 300 units during the quarter. If Xu uses the LIFO method, what is its cost of goods sold?

a. $1,500

b. $1,800

c. $1,400

d. $1,600

Cost of goods sold is d. $1,600

Explanation:

The LIFO is a method used to account value for inventory. Under the method, the last item of inventory purchased is the first one sold.

1. January 1, Inventory 300 units, $5 per unit. Total $1,500

2. Purchasing:

In February, 500 units, $4 per unit. Total $2,000

In March, 200 units, $6 per unit. Total $1,200

The Xu Corporation uses a periodic inventory system and sells 300 units during the quarter.

Cost of goods sold = 200 x $6 + 100 x $4 = $1,200 + $400 = $1,600