LIFO inventory costing

CFA Level I
#1

Guys, an easy one, just to keep the spirits high :slight_smile: During the fiscal year ended December 31, 20X3, Skowronski, Inc. had net sales of $28,500,000 and net income of $3,400,000. The following additional information is available: Beginning Inventory: 50,000 units @ $250 = $12,500,000 Purchases: March 31st 15,000 units @ 275 = 4,125,000 June 30th 25,000 units @ 290 = 7,250,000 September 30th 8,000 units @ 315 = 2,520,000 Ending Inventory: 35,000 units Based on the inventory information above, the inventory turnover ratio for the year ended December 31, 20X3 under the LIFO inventory costing method is closest to: a. 1.66x b. 1.90x c. 2.05x d. 2.14x - Dinesh S

#2

c

#3

Beginning Inventory: 50,000 units @ $250 = $12,500,000 Purchases: March 31st 15,000 units @ 275 = 4,125,000 June 30th 25,000 units @ 290 = 7,250,000 September 30th 8,000 units @ 315 = 2,520,000 Ending Inventory: 35,000 units EI = 35 * 250 = 8750 Avg Inv = ( 8750 + 12500 )/2 = 10625 COGS = 12500 + 4125 + 7250 + 2520 - 8750 = 17645 So Inv. Turnover = 17645 / 10625 = 1.66X Answer choice A (This is one of the few places where the Avg Inv I suppose must be used) Because BI = EI Of the previous year… (So technically 2 balance sheets have been provided with this information). I believe Nikko used 10625 and arrived at 2.02x

#4

I got A too, using average inventory. When exactly would you use Ending Inv?

#5

i got A. InvTurn = COGS/AvInv = (BI+Purch-EI)/[(BI+EI)/2], EI = 35*250.

#6

The Answer is A. Only possible trap here would be to have not used the (BI+EI)/2 for the Avg Inventories in the denominator. - Dinesh S

#7

Another potential trap would be having to add in LIFO reserve (if it was given) to find inventory on a FIFO basis since that is a better indicator of inventory valuation for ratios.