Periodic LIFO System

1. Determine ending inventory and cost of goods sold using a periodic LIFO system.

2. Monitor inventory on an ongoing basis through a perpetual LIFO system.

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3. Understand the reason that periodic LIFO and perpetual LIFO may arrive at different figures.

4. Use a weighted average system to report ending inventory and cost of goods sold.

5. Calculate inventory balances by applying a moving average inventory system.

Question: LIFO reverses the FIFO cost flow assumption so that the last costs incurred are the first reclassified

to cost of goods sold. How is LIFO applied to the inventory of an actual business? If the Mayberry Home

Improvement Store adopted LIFO, how would the reported figures have been affected by this decision?

Answer: Periodic LIFO. In a periodic system, only the computation of the ending inventory is altered by the

choice of a cost flow assumption1. Thus, for this illustration, beginning inventory remains $440 (4 units at $110

each) and the number of units purchased is still eight with a cost of $1,048. The reported figure that changes is

the cost of the ending inventory. Four bathtubs remain in stock at the end of the year. According to LIFO, the last

costs are transferred to cost of goods sold; only the cost of the first four units remains in ending inventory. That is

$110 per unit or $440 in total.