- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 25. Inventories
- Subject 3. Periodic versus Perpetual Inventory System

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**CFA Practice Question**

Date Quantity Per Unit Total Cost

Jan 1: Beginning Inventory 100 $18.00 $1,800.00

Mar 4: Purchase 400 $19.00 $7,600.00

Apr 1: Sold 50 units

May 2: Purchase 100 $20.00 $2,000.00

Jan 1: Beginning Inventory 100 $18.00 $1,800.00

Mar 4: Purchase 400 $19.00 $7,600.00

Apr 1: Sold 50 units

May 2: Purchase 100 $20.00 $2,000.00

In a perpetual system, what is the average cost per unit after the May 2 purchase?

A. $19.02

B. $18.80

C. $18.20

**Explanation:**The cost of the 450 units on hand before the May 2 purchase is $18.80 per unit. 450 units x $18.80 = $8,460 + $2,000 = $10,460. This total divided by the 550 unit total equals a $19.02 moving average cost per unit.

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**User Contributed Comments**
8

User |
Comment |
---|---|

Jmiller74 |
Is the answer 19.02 or 18.8 I do not understand. |

shasha |
it's 19.02, using updated cost divided by units left. |

achu |
Remember, Perpetual system uses average cost of units- neither lifo nor fifo method. |

ManuB |
How did they get "The cost of the 450 units on hand before the May 2 purchase is $18.80 per unit"? 1800 + 7600 = 9400. Now what do we subtract from 9400? How do we know the selling cost for the 50 units sold? |

novica |
GOGS for 50 units is 18.80. Stick with the units not $$$ |

taysys1 |
We make a first calculation of average cost before the sale of 50 units: Average cost before= (1800+7600)/500=18.80 per unit Average cost after the May, 2 purchase= (450x18.8+100x20)=19.02 |

morek |
I just used the weighted average and got $19. Is that incorrect? |

smarkheim |
how is this question medium difficulty? |