CFA Practice Question

CFA Practice Question

Given the following information, what is the FIFO Cost of Goods Sold?

Purchases: $793 million
LIFO COGS: $6,276 million
Beg. Inv. LIFO Reserve: $390 million
Ending Inv. LIFO Reserve: $459 million
A. $5,817 million
B. $6,207 million
C. $6,345 million
Explanation: FIFO COGS = LIFO COGS - (Ending Inv. LIFO Reserve - Beg. Inv. LIFO Reserve) = $6,276 million - ($459 million - $390 million) = $6,207 million

User Contributed Comments 6

User Comment
mtcfa Easier formula: change in LIFO reserve = LIFO COGS - FIFO COGS
julamo as far as i'm aware it's exactly the same formula as the one used in the answer.
BastianJB why are purchases not relevant?
Dinosaur the reserves take into account the purchases
dlukas I remember it this way:

FIFO inv. bal. = LIFO inv. bal + LIFO reserve

Plus because you're calculating a positive balance in the inventory account.

FIFO COGS = LIFO COGS - LIFO effect

Minus because you're looking for the amount of inventory subtracted (sold)
farhan92 while not as technically astute..I remember these formulas as
End of year balance = Beginning balance + the rest of the crap that happened during the year.
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