LIFO Inventory Valuation Methods

MJC Revised 12/2010 Page 1

Chart 1

Inventory-listing chart in the order items were purchased during the year.

Purchase Dates Number of

units

Cost per

unit

Total

extended cost

Beginning inventory

(oldest material) 20 7 140

First purchase of the year 40 8 320

Second purchase 30 9 270

Third purchase 20 10 200

Fourth purchase

(Newest Material) 30 11 330

Units Available for sale and Goods Available for Sale

(Total of all purchases plus beginning inventory) 140 X $1,260

Less: Units Sold 80

Units in ending inventory 60

How to Create Chart 1- the Inventory-Listing Chart

1. Create the chart of items, which will display in order from oldest to newest the beginning

inventory and all of the items in inventory that were purchased during the year. Start with

the beginning inventory, which is any item(s) left in stock at the end of the prior year.

Then list in order of purchase date items of inventory purchased during the year. You will

start the chart with the four columns which will be labeled as follows:

(a)

Purchase Dates

(b)

Number

of units

(c)

Cost per

unit

(d)

Total

extended cost

(b) X (c) = (d)

2. Fill in the information of how many purchases, the number of units per purchase, the cost

per unit for each purchase. Multiply across the number of units times the cost per unit to

get the total extended cost.

3. Total down the columns for number of units and total extended cost. This will give you

total units and goods available for sale. There is no need to total column (c) Cost per unit

because it provides no useful information.

4. Subtract the total units sold for the total units available for sell in column (b) Number of

units to get the number of units in ending inventory.

LIFO Inventory Valuation Methods

MJC Revised 12/2010 Page 2

LIFO Method

Chart 1-Use chart 1 from page 1.

Chart 2 – the calculation for the value of ending inventory:

Purchase Date Number of units Cost per unit Total Extended Cost

Beginning Inventory 20 7 140

First purchase 40 8 320

Total ending cost 60 X 460

Chart 3 – the calculation for the value of Cost of Goods Sold:

Item Title Amount

Goods Available for Sale 1,260

Less: Cost of Ending Inventory 460

Equals: Cost of Goods Sold $800

Chart 4 – the calculation for the value of Cost of Goods sold using the check method.

Item Title Number of units Cost per unit Total Extended Cost

Fourth purchase 30 11 330

Third purchase 20 10 200

Second purchase 30 9 270

Cost of Goods Sold 80 X $800

*Note that the total cost in chart 4 is the same as the total cost in chart 3.

LIFO Inventory Valuation Methods

MJC Revised 12/2010 Page 3

LIFO Method

How to create chart 2 – The Cost of Ending Inventory Chart for LIFO

1. For LIFO you will need to use these headings for chart 2

(a) Purchase Date

(b) Number of units

(c) Cost per unit

(d) Total Extended Cost

2. LIFO starts from the top of the inventory-listing chart, which is chart 1. Use the number

of units column (b) count down until you reach the number of units in the ending

inventory. In chart one each row is designated by the date those units were purchased.

The rows have the number of units that were purchased on that date in time, the unit price

paid for those units along with the total extended cost for all of the units purchased on

that date.

You will find that in counting units in chart one from the top down that the number of

ending units for the last row to complete the total number of units in ending inventory

may not be completely used up because some of those units were sold during the year and

therefore are no longer in the ending inventory. For the last row used, you will need to

multiply the number of units that are needed to complete the total ending inventory times

the cost per unit to get the correct value for the row.

3. Once you have the units counted out then multiply out the units by the unit cost in each

row to get the total extended cost.

4. Now total the column for number of units and total extended cost. These two columns

will give you ending inventory in units and ending inventory cost. Never total the column

for cost per unit down because it has no useful meaning or value.

How to create chart 3 – Cost of Goods Sold chart for LIFO

1. For LIFO you will need to use this chart:

Item Title Amount

Goods Available for Sale

Less: Cost of Ending Inventory

Equals: Cost of Goods Sold

2. Goods Available for Sale in dollars comes from chart 1 – the inventory-listing chart. You

will find that information at the bottom of the chart on the right hand side of your page.

LIFO Inventory Valuation Methods

MJC Revised 12/2010 Page 4

3. Next is less cost of ending inventory, which comes from chart 2 at the bottom of that

chart.

4. Now subtract cost of ending inventory from goods available for sale to arrive at the cost

of goods sold.

How to create chart 4 – Cost of Goods Sold chart using the Check Method for LIFO

1. For LIFO you will need to use this chart:

Item Title Number of units Cost per unit Total Extended Cost

Fourth purchase

Third purchase

Second purchase

Cost of Goods Sold X

2. For the check method, you will start at the bottom of chart 1 and list items up until you

complete the number of units sold during the year. As in counting down for ending

inventory their will most likely be units in the last row where some units were sold and

some units are still in ending inventory so you will have to recalculate that total extended

cost for the row with only the units you are using.

3. Next recalculate out the total extended cost for each row to make sure that you have

rechecked your calculations and that they are correct. Failure to do this recheck could

lead to unwanted errors.

4. Finally total the columns down for number of units and total extended cost this will give

you units sold and cost of goods sold.

5. Now check your total for chart 4 against the total in chart 3 if the totals match then you

have a correct ending total for cost of goods sold.