- CFA Exams
- CFA Level I Exam
- Topic 4. Financial Statement Analysis
- Learning Module 2. Analyzing Income Statements
- Subject 2. Expense Recognition - Inventory
CFA Practice Question
SportsTrader began operations on January 1, 2011. It has been using FIFO since then for inventory accounting. The following stock record card for footballs was taken from the records at the end of the year.
B. $640
C. $595
- 01/01 Beginning inventory 10 units, at $20 each, total $200
- 05/09 30 footballs purchased, at $22 each, total $660
- 08/08 15 footballs purchased, at $25 each, total $375
- 12/31 Ending inventory: 25 footballs
What is the COGS for the year?
A. $530
B. $640
C. $595
Correct Answer: B
10 x $20 + 20 x $22 = $640
User Contributed Comments 14
| User | Comment |
|---|---|
| ashok1959 | why answer is not c? |
| thud | because $595 is the value of the ending inventory. COGS = beginning + purchases - ending. |
| teddajr | Nice Qns.. Need to be alert. |
| mirfanrana | can anybody explain this answer its not clear to me.why we took 30 number of items because ending inventory is 25. |
| julescruis | The question asks for COGS not inventory valuation. Since FIFO assumes you sell oldest inventory first, COGS is calculated using price of oldest inventory |
| dbadidas8 | For FIFO: -First purchase= 30 Items. Allocate costs to BI (10) + remaining items (20). |
| tiamiyu | DBADIDAS8, PLS EXPLAIN YOUR ANS. WHY ALLOCATION COST TO 30 AND NOT 40 (10+30) |
| dravinskis | 10 footballs to begin with plus 45 footballs purchased minus 25 footballs remaining equals 30 footballs sold. COGS is 10 from BI(X$20)+ 20 purchased (X$22) = $640 |
| Oarona | dravinskis:You explained it very well. thanks |
| rocyang | Could real exam questions be like this little prick? :\ |
| george1803 | Key trick is to calculate the COGS before hand |
| daverco | You first have to calculate units sold: Ending inventory = Beginning inventory + Purchases - Units sold => 25 = 10 + 45 - Units sold => Units sold = 30 THEN you can calculate COGS by applying FIFO logic (earliest costs first) as shown in the answer. |
| Thorne91 | $640=-(15*$25+10*$22)+$375+$660+$200. This equation is just how i visualize it in my head. My question is more or less am I right in this equation or just lucky ?! |
| choas69 | why all this thorne just pick up first 30 balls and multipli them by their price and finish FIRST IN FIRST OUT |