- CFA Exams
- CFA Level I Exam
- Study Session 8. Financial Reporting and Analysis (3)
- Reading 25. Inventories
- Subject 2. Inventory Valuation Methods
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 15 Purchases 100 units @ $26
July 25 Purchases 300 units @ $28
July 30 Sales 200 units @ $40
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 ending inventory, using the FIFO cost method, is ______.
A. $11,000
B. $9,000
C. $8,000
Explanation: The cost of inventory is the ending inventory value on the balance sheet on July 31. Using FIFO, the costs allocated to ending inventory will be the most recent costs. Therefore, if 400 units are remaining, the ending inventory value will be 300 @$28 + 100 @$26.
User Contributed Comments 5
| User | Comment |
|---|---|
| samhoklee | shouldnt it be 200@$40 & 200@$28? |
| johnsk | samhoklee: why? |
| danlan | Cost of ending inventory is 11000, COGS is 8000 |
| wundac | read the question carefully |
| swkimpo | You had 400 units to start with, which is enough to cover the 400 units sold. So under FIFO, you should be using $20 for the unit cost. |