CFA Practice Question

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CFA Practice Question

Greenbelt Processors had a beginning inventory of 798 units valued at a cost of $34,895. It purchased 4,474 units of new inventory worth $195,402 during the year. A year-end audit revealed that it had 853 units on hand.

If the average unit price was $43.65 at the end of the year, what COGS would Greenbelt report?
A. $193,064
B. $193,035
C. $193,027
Explanation: If the ending price is $43.65, which is less than all three unit prices calculated under FIFO, LIFO, or Average Cost Method, the conservative principle of "lower of cost or market" needs to be applied. At this price,

Ending inventory = 853 x 43.65 = 37,233
COGS = BI + Purchases - EI = 34,895 + 195,402 - 37,233 = 193,064

User Contributed Comments 10

User Comment
jpducros I would rate this one as difficult
JakeZ indeed
schweitzdm We are supposed to calculate ending price with each method and then compare that with the given price?

Question mentions average price, isn't that supposed to indicate that we are using average pricing method?
schweitzdm nvm - time for a break
BladeMage3 Very misleading question.
kamal316 too hard
Sheeb This one was totally easy guys.
Wilko COGS = BI + Purchases - EI

COGS = 34895 + 195402 - (853*43.65)

COGS = 193064
lighty0770 Maybe it was just me but I actually backed in and solved for the average cost which was 46.68, instead of the 43.65 stated, and in doing so you calculate a value of 193,035.
alexa821 it was not just you lighty0770
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