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 weighted average cost method, is ______.

A. $11,000
B. $8,000
C. $9,500
Correct Answer: C

It is necessary to first calculate the weighted average cost per unit: [(400@$20) + (100@$26) + (300@$28)] /800 = $23.75. The WAC is then multiplied by the number of units remaining in inventory, which is 400@$23.75 = $9,500.

User Contributed Comments 10

User Comment
kodali I think it should be (200@$20)+(100@26)/300 = $22
(300 @22) + (300 @28)/600 = $25

$400 * 25 = $10,000
gord Answer is $9,500. Note that they do not maintain perpetual inventory records so the timing of the purchases is irrelevant and must be looked at in aggregate.
guna Sales is ignored. Only pluses to inventories are used.
potocah I think it should be 400@40 intead of 400@20!!
Vikku No potocah. $20 is the purchase cost whereas $40 is the selling price which we don't consider in calculation.
fmhp Cost of inventory=cost of goods for sale=BI+P
johntan1979 Thanks gord. This is a good question.
isalya got the same answer as Kodali. Should remember that it was not perpetual.
kingirm With perpetual recording probably a moving average wouLD reflect a better estimate
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