https://file.aiquickdraw.com/mathbot/file/1727174853095bygz5wq6.jpg

To solve this problem using the **Last-In-First-Out (LIFO)** method, we need to focus on how the LIFO method handles inventory.

### Steps:
1. **Calculate the total units issued**: Add up the issued units.
   - July 11: 380 units
   - July 24: 200 units
   - July 27: 150 units
   \[
   \text{Total issued} = 380 + 200 + 150 = 730 \, \text{units}
   \]

2. **Determine the total purchases and opening stock**:
   - July 01: Opening stock of 200 units @ Pula 41.00 each
   - July 03: Purchased 250 units @ Pula 45.25 each
   - July 09: Purchased 150 units @ Pula 50.50 each
   - July 16: Purchased 300 units @ Pula 52.00 each
   \[
   \text{Total purchases} = 200 + 250 + 150 + 300 = 900 \, \text{units}
   \]

3. **Determine the units remaining in stock**: It is mentioned that at the end of July, 170 units were in stock. 

4. **Apply LIFO**:
   - **LIFO means the most recent purchases are sold first**. Therefore, the ending stock comes from the earliest purchases.

5. **Calculate the value of the ending stock (170 units)** using the earliest purchases:
   - First, take from the **July 01 (Opening Stock)** of 200 units @ Pula 41.00.
   \[
   \text{Ending stock} = 170 \, \text{units from July 01 at Pula 41.00 each}
   \]
   \[
   \text{Total value of ending stock} = 170 \times 41.00 = Pula 6,970.00
   \]

### Limitation of LIFO:
One disadvantage of using the **LIFO method** is that it can result in **lower reported profits** during times of rising prices, as it uses the cost of the most recent purchases (which may be higher) for cost of goods sold (COGS), while the older and lower costs remain in inventory. This can also reduce tax liability but may not reflect the true economic value of the inventory on hand.

Would you like further details on any of these steps, or have any specific questions?

### Relative questions:
1. How does LIFO differ from FIFO (First-In-First-Out)?
2. Why might a company choose LIFO in a period of inflation?
3. How does the LIFO method impact financial statements, especially in terms of profitability?
4. What are the tax implications of using LIFO?
5. What would the ending inventory value be under the FIFO method?

### Tip:
When prices are rising, LIFO typically results in higher costs of goods sold, which may lower taxable income but also understates inventory value.

Determine the value of ending stock if the Jerro Company uses the Last-in-First-Out (LIFO) method to issue stock. Use this example to illustrate one limitation/disadvantage of the LIFO method.

Calculate the ending stock value for Jerro Company using the LIFO method in July 2016. This involves understanding inventory valuation and periodic inventory systems. It also highlights a key limitation of the LIFO method, specifically its impact on reported profits.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation