- Identify the unit costs: August 1 purchase is \(\$5\) per unit, and August 12 purchase is \(\$3\) per unit.
- August 8 sale: Sell 235 units from the August 1 batch, resulting in a COGS of \(235 \times \$5 = \$1175\).
- August 24 sale: Sell 430 units from the August 12 batch, resulting in a COGS of \(430 \times \$3 = \$1290\).
- Sum the COGS: \(\$1175 + \$1290 = \boxed{\$2465.00}\).
Explanation
- Calculation of Total COGS using Perpetual LIFO
We need to calculate the total Cost of Goods Sold (COGS) for August using the perpetual Last-In, First-Out (LIFO) inventory method.
- August 1: The company purchases 330 units for a total of \(\$1650\). The unit cost is \(\frac{\$1650}{330} = \$5\).
- August 8: The company sells 235 units. Since this is the only batch in stock, the COGS for this sale is \(235 \text{ units} \times \$5/\text{unit} = \$1175\).
- Remaining Inventory after August 8: \(330 - 235 = 95\) units at \(\$5/\text{unit}\).
- August 12: The company purchases 440 units for \(\$1320\). The unit cost is \(\frac{\$1320}{440} = \$3\).
- Current Inventory after August 12: 95 units at \(\$5/\text{unit}\) and 440 units at \(\$3/\text{unit}\).
- August 24: The company sells 430 units. Using perpetual LIFO, we sell the most recently purchased units first. These are the 440 units purchased on August 12 at \(\$3/\text{unit}\). Thus, the COGS for this sale is \(430 \text{ units} \times \$3/\text{unit} = \$1290\).
- Total COGS: The sum of the COGS from the August 8 sale and the August 24 sale is \(\$1175 + \$1290 = \$2465\).
Examples
Understanding inventory costing methods like LIFO is crucial for business owners and accountants. For example, if a store sells perishable goods, using LIFO might reflect the current market replacement cost of inventory, which can impact profitability reports and tax obligations. By mastering these calculations, you can better analyze a company's financial health and make informed operational decisions based on stock management.