Last-In, First-Out (LIFO) Method

Last-In, First-Out is one of the common techniques used in the valuation of inventory on hand at the end of a period and the cost of goods sold during the period. LIFO assumes that goods which made their way to inventory (after purchase, manufacture etc.) later are sold first and those which are manufactured or acquired early are sold last. Thus LIFO assigns the cost of newer inventory to cost of goods sold and cost of older inventory to ending inventory account. This method is exactly opposite to first-in, first-out method.

Last-In, First-Out method is used differently under periodic inventory system and perpetual inventory system. Let us use the same example that we used in FIFO method to illustrate the use of last-in, first-out method.

Example

Use LIFO on the following information to calculate the value of ending inventory and the cost of goods sold of March.

LIFO Perpetual

 Date Purchases Sales Balance Units Unit Cost Total Units Unit Cost Total Units Unit Cost Total Mar 1 60 $15.00$900 5 140 $15.50$2,170 60 $15.00$900 140 $15.50$2,170 14 140 $15.50$2,170 10 $15.00$150 50 $15.00$750 27 70 $16.00$1,190 10 $15.00$150 70 $16.00$1,120 29 30 $16.00$480 10 $15.00$150 40 $16.00$640 31 10 $15.00$150 40 $16.00$640

Written by Irfanullah Jan