Charter Company, which uses the perpetual inventory method, purchases different letters for resale. Character had a beginning inventory comprised of nine units at $3 per unit. The company purchased four units at $5 per unit in February, sold seven units in October, and purchased five units at $6 per unit in December. If Charter Company uses the LIFO method, what is the cost of goods sold for the year

Cost of Goods sold is $29

Explanation:

Under the perpetual LIFO or Last In First Out method of inventory valuation, we value the Cost of Goods Sold based on the price of the most recently purchased inventory before sale. Thus the units of closing inventory contains the inventory that was purchased first.

The cost of goods sold under LIFO will be,

Beginning Inventory (9* 3)   = 27

Feb purchases (4 * 5)           = 20

Oct sales (4 * 5 + 3 * 3)         = (29)

Dec purchases (5 * 6)           = 30

Ending Inventory                  = 48

So, the cost of goods sold under perpetual LIFO will comprise of the most recently purchased inventory before sale. The most recently purchased inventory before October sale was of February purchases. Thus, out of the 7 units sold, 4 will comprise of the February purchases and the remaining, 3 units, will be from the beginning inventory.

The cost of goods sold is,

COGS = 4 * 5 + 3 * 3

COGS = 29

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