Abbit Co uses LIFO for it's inventory valuation. Given the historical cost of product Z is $60, the selling price of product Z is $50, costs to sell product Z are $6, the replacement cost for product Z is $41, and the normal profit margin is 40% of sales price, what is the amount that should be used to value the inventory?

The last-in, first-out inventory valuation method establishes that the inventory will be valued at the same price as the last units purchased or produced. This system considers that the last units that enter our merchandise inventory are the first ones to be sold.

In Abbit's case, the last units to enter their inventory cost $41 per unit (replacement cost). SO if we use the LIFO system then we will use the $41 per unit cost.

ewomazinoade ewomazinoade · Answer 2 · 2021-10-28T12:10:02+02:00

The amount that should be used to value the inventory is $60.

The LIFO method means last-in, first-out. It means that the inventory that was last purchased are the first to be sold. Ending inventory is assumed to be the earliest purchased inventory. For example, the beginning inventory is $3. One unit was purchased during the course of the month for $5. If the LIFO method is used, cost of goods sold is $5. Ending inventory is $3.

The cost used to value the inventory would be the historical cost. This would be $60. The replacement cost of the inventory would be used to value the cost of goods sold. The price of inventory would be $41.

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