FRA Practice Problem Reading 21 - Inventories

CFA Level I FRA
#1

Hi, could you help me understand the following calculations given in Question 4, page 297 (FRA) in the official CFA curriculum 21/22 if the question asked to use the perpetual FIFO method rather than the perpetual LIFO method?

What is the value of ending inventory for the first quarter if the company uses a
perpetual LIFO inventory valuation method?
A $14,500
B $15,000
C $16,000

There are two tables with Units Purchased and Sold (first quarter) and Comparison of Inventory Methods and Model. I did not attach them as I was not sure if it would not break any copyrights (?)
Nevertheless, the correct answer is A, (300 × $20) + (500 × $17) = $14,500.

Do I understand it correctly that under FIFO, the ending inventory valuation would be
800 × $17 = $13,600?

Thank you in advance

#2

in lifo we sell the last inventory,
so on 17 feb inventory left is 500 units @20 ,
on 3 march 300 units @ 20,
on 23 march 500 units @ 17 and 300 units @ 20,
hence the ending inventory is (500 * 17)+(300 * 20)=14,500.

#3

Hi Rudresh,

Thanks for your response. However, I specifically asked about the hypothetical scenario under FIFO, rather than LIFO. Can you work it out using FIFO instead?

#4

Fifo
17 Jan leftover Inventory is 500 units @ 20
3 march 300 units @ 18
23 march 800 units @ 17
therefore 800 * 17 = 13,600
yes you are right.
@dominik.wrb

1 Like
#5

Thanks, Rudresh_K. :slight_smile: