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Basic Question 1 of 3
Beginning inventory: 10 units @ $5 per unit
First sale: 4 units
First purchase: 10 units @ $6 per unit
Second purchase: 12 units @ $7 per unit
Second sale: 20 units
B. $36
C. $56
First sale: 4 units
First purchase: 10 units @ $6 per unit
Second purchase: 12 units @ $7 per unit
Second sale: 20 units
What is the value of the ending inventory, using a perpetual inventory system and a FIFO cost flow assumption?
A. $26
B. $36
C. $56
User Contributed Comments 6
| User | Comment |
|---|---|
| quincy | FIFO: first sale 4 leaving 6@$5, second sale 20, leaving (20-6-10-12)=8@$7, this is the ending inventory. |
| theal | damn thats annoying to calc. |
| apiccion | It's easier if you calculate the number of units in ending inventory, and then work backwards. So: 10 - 4 + 10 + 12 - 20 = 8 units in final inventory. 8 * $7 = 56 |
| safash | but shouldnt fifo consider the prices of earliest purchases hence 8 units should be multiplied by $6 per unit |
| johntan1979 | If it is periodic FIFO, answer is the same. |
| sshetty2 | neg safash, this confuses the heck out of me too, but you need to keep in mind what the question is asking. If it were asking for the COGS, then you would multiply the number of good sold with the prices of the earliest purchases. If it's asking for the monetary value of ending inventory, you would need to calculate the quantity of ending inventory and multiply it by the price of goods last purchased (under FIFO). |
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Tamara Schultz
Learning Outcome Statements
describe different inventory valuation methods (cost formulas);
calculate and compare cost of sales, gross profit, and ending inventory using different inventory valuation methods and using perpetual and periodic inventory systems;
calculate and explain how inflation and deflation of inventory costs affect the financial statements and ratios of companies that use different inventory valuation methods;
CFA® 2024 Level I Curriculum, Volume 3, Module 22.