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In its first month of operation, Splish Brothers Inc. purchased 300 units of inventory for $8, then 400 units for $9, and finally 340 units for $10. At the end of the month, 380 units remained. Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO.

Respuesta :

Answer: $640

Explanation:

Phantom profits occur when historical costs and replacement costs are different .

It usually occurs when the first in, first out (FIFO) inventory system is used instead of Last in,first out (LIFO).

The total number of inventory = 300 + 400 + 340 = 1040

Total inventory sold = 1040 - 380 = 660

Under the FIFO system, cost of goods sold =

(300 × 8) + (360 × 9) = $5640

Under the LIFO system, cost of goods sold =

(340 × 10) + (320 × 9) = $6280

Phantom profit = LIFO - FIFO

$6280 - $5640 = $640

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