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LIFO Inventory Valuation
This LIFO calculator uses the last-in-first-out method of inventory valuation to determine ending inventory value and cost of goods sold. This method assumes that the last inventory items that are purchased are the first ones to be sold.
A practical example of a store that uses LIFO would be a pharmacy. Pharmaceutical products tend to experience high inflation in prices. Thus, it is most accurate for them to report based on the most recent prices of their inventory purchases. Therefore, the oldest costs are the ones that remain on the balance sheet while the most recent ones are expensed first.
Consider the pharmacy example mentioned above. Here is an example of the pharmacy’s schedule of pill purchases:
July 6, 2019: 100 pills purchased at $1.15/pill
July 7, 2019: 100 pills purchased at $1.65/pill
July 9, 2019: 100 pills purchased at $2.25/pill
If by July 10th, this pharmacy sold 220 pills, what would its inventory value and COGS be?
We can calculate this by applying the LIFO method used in CFI’s LIFO calculator.
Following the schedule above, we can calculate the cost of the remaining pills and the cost of goods sold.
July 9, 2019: 100 pills sold at $2.25/pill = $225 in COGS
July 7, 2019: 100 pills sold at $1.65/pill = $165 in COGS
July 6, 2019: 20 pills sold at $1.15/pill = $23 in COGS
Therefore, total cost of goods sold would be 225+165+23 = $413 and the remaining inventory value would be 80*1.15 = $92.
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