Under the same inventory data, two units sold. LIFO COGS and ending valuation?

Under the same inventory data, two units sold. LIFO COGS and ending valuation?

• A. COGS $400, Valuation $500
• B. COGS $600, Valuation $300
• C. COGS $800, Valuation $100
• D. COGS $200, Valuation $700

Answer: (C)

Under LIFO, the cost of the most recently purchased units is assigned to COGS, and the ending inventory reflects the oldest costs. If input costs have been rising over time, this means the two units sold will take the higher, newer costs, making COGS relatively high, while the ending inventory retains the older, lower costs, so its value is relatively low. Two units sold using the latest costs inflates COGS, and the remaining inventory uses the earliest costs, pulling ending value down. The pair with COGS of 800 and ending inventory of 100 fits that pattern: a large COGS figure paired with a small ending value indicates the most recent, higher costs were expensed, leaving the older, cheaper costs in ending inventory. Also, the total cost of goods available for sale remains the same across methods, so 800 plus 100 equals the same overall cost for the period. If costs had been falling, the opposite pattern would occur, with lower COGS and a higher ending value under LIFO.

Under LIFO, the cost of the most recently purchased units is assigned to COGS, and the ending inventory reflects the oldest costs. If input costs have been rising over time, this means the two units sold will take the higher, newer costs, making COGS relatively high, while the ending inventory retains the older, lower costs, so its value is relatively low.

Two units sold using the latest costs inflates COGS, and the remaining inventory uses the earliest costs, pulling ending value down. The pair with COGS of 800 and ending inventory of 100 fits that pattern: a large COGS figure paired with a small ending value indicates the most recent, higher costs were expensed, leaving the older, cheaper costs in ending inventory. Also, the total cost of goods available for sale remains the same across methods, so 800 plus 100 equals the same overall cost for the period. If costs had been falling, the opposite pattern would occur, with lower COGS and a higher ending value under LIFO.