CFA Practice Question

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CFA Practice Question

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

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
Correct Answer: C

Only 8 units remain after the second sale. On a FIFO perpetual basis, the 8 units will be assigned the most recent purchase price of $7 ($7 x 8 = $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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