Question

In its first month of operation, Kingbird, Inc. purchased 320 units of inventory for $9, then 420 units for $10, and finally 360 units for $11. At the end of the month, 400 units remained. The company uses the periodic method. Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO.

Answer 1

Answer:

$680

Explanation:

Using the FIFO method

Closing Stock = [ 360 × $11 ]  + [ ( 400 - 360 ) × $10 ]

=  $3,960 + $400

= $4,360

Using the LIFO method

Closing Stock = [ 320 × $9 ] + [ ( 400 - 320 ) × $10 ]

= $2,880 + $800

= $3,680

Therefore,

The amount of Phantom Profit

= Closing Stock using the FIFO method - Closing Stock using the LIFO method

= $4,360 - $3,680

= $680