Accounting Help

Question

A company purchased 260 units of inventory for $8 then, 360 units of inventory for $9 and 300 units for $10 andat the end of month 330 units remained. Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO. How do I solve this problem?

Answer 1

Sorry I must have answered before you had the complete question posted ...
 
In this case phantom profit would be the difference between the costs incurred in using FIFO instead of LIFO.
 
The company purchased 260+360+300=920 units. If there are 330 left in inventory then they sold 920-330=590 units.
 
Using FiFO the first 260 units of the 590 would be costed at $8/unit. The next 330 would be from the next purchase at $9. So total cost is: 260*8(2080) + 330*9(2970) = $5050
 
Using LIFO the first 300 would be costed at $10, and the next 290 at $9. So the total cost would be 300x10(3000) + 290x9(2610) = 5610.
 
Thus the difference between the costs, or phantom profit, would be 5610-5050 =$560.