Charter Company, which uses the perpetual inventory method, purchases different letters for resale. Charter had a beginning inventory comprised of six units at $3 per unit. The company purchased three units at $5 per unit in February, sold six units in October, and purchased three units at $6 per unit in December. If Charter Company uses the LIFO method, what is the cost of its ending inventory?

$27

Explanation:

Using LIFO method cost of ending inventory :

Opening balance 6 units at $3 per unit:

= 6 × $3

= $18

Purchased 3 units at $5 per unit:

= 3 × $5

= $15

Sold 6 units (3 units at $5 per unit and 3 units at $6 per unit):

= $15 + $18

= $33

Balance inventory left:

= Opening balance + Units purchased - Units sold

= 6 units + 3 units - 6 units

= 3 units

Balance inventory left is 3 units at $3 per unit:

= 3 units × $3

= $9

Bought 3 units at $6 per unit:

= 3 × $6

= $18

Therefore, the cost of its ending inventory is as follows:

= Balance inventory left is 3 units at $3 per unit + Bought 3 units at $6 per unit

= $9 + $18

= $27

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