CFA Practice Question

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CFA Practice Question

Diane Corporation had 400 units of inventory on hand on July 1, costing $20 each. Purchases and sales of goods during the month of July were as follows:

July 12 Sales 200 units @ $40
July 15 Purchases 100 units @ $26
July 25 Purchases 300 units @ $28
July 30 Sales 200 units @ $40

Assume Diane Corporation does not maintain perpetual inventory records. According to a physical count, 400 units were on hand on July 31.

The cost of inventory on July 31, using the LIFO cost method, is ______.
A. $11,000
B. $8,000
C. $9,500
Explanation: Using LIFO, the costs allocated to ending inventory will be the oldest costs. Therefore, if 400 units are remaining, the ending inventory value will be 400 @ $20 = $8,000.

User Contributed Comments 8

User Comment
kalps NB This question specified no perpetual inventory system is used - very confusing and must read properly
mutual kalps: perpetual inventory system should be normally assumed.
geet How would the answers differ when or when not using the perpetual inverntory system? Whats the difference?
danlan If no perpetual inventory system, this answer,
because we suppose the cost is 400*20=8000

With Perpetual inventory system, the answer may be 200*20+100*26+100*28=9400
chenchow With the dates listed, the goods sold on 12th July should only be from the inventory as per 1st July. It shouldn't be possible to sell those goods that are arriving on 15th or 25th July on 12th, unless customers are willing to get the products later.

Please correct me if my understanding is wrong. Thanks.
nice chenchow: physically, you are right. Logically, it's a different story. Investory costs are determined at the end of accounting period (e.g. end of July). At the time accountants don't track which specific shipment went to which destination. Instead, LIFO says "this shipment arrived the last so we suppose it's sold..."
gill15 Cost of inventory NOT COGS...
ashish100 hahahah these guys^

AN - Gote'm!!
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