FA Module 8 Inventory FIFO practice exam questions


FA Module 8 Inventory FIFO practice exam questions

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FA Module 8 Inventory FIFO practice exam questions

(The attached PDF file has better formatting.)

A firm buys inventory in Country W and resells it to customers in Country Z.

●    At year-end 20X0, the firm has 189 units of inventory that cost 8.80 apiece.
●    In 20X1, the firm buys 503 units at 10.50 apiece and sells 361 units for 16.10 apiece.
●    In 20X2, the firm buys 557 units at 11.30 apiece and sells 542 units for 19.10 apiece.

The firm uses the first-in first-out (FIFO) inventory method.

Question 8.1: Inventory at year-end 20X1

What is the inventory at year-end 20X1?

Answer 8.1: (189 + 503 – 361) × 10.50 = 3,475.50

(Units sold in 20X1 are more than units held at year-end 20X0, so all inventory held at year-end 20X1 uses 20X1 costs.)


Question 8.2: Inventory at year-end 20X2

What is the inventory at year-end 20X2?

Answer 8.2: (189 + 503 – 361 + 557 – 542) × 11.30 = 3,909.80

(Units sold in 20X2 are more than units held at year-end 20X1, so all inventory held at year-end 20X2 uses 20X2 costs.)


Question 8.3: Cost of goods sold in 20X1

What is the cost of goods sold in 20X1?

Answer 8.3: 189 × 8.80 + 503 × 10.50 – 3,475.50 = 3,469.20

(cost of goods sold in 20X1 = units on hand at year-end 20X0 × cost per unit + units bought in 20X1 × cost per unit in 20X1 – inventory at year-end 20X1)


Question 8.4: Cost of goods sold in 20X2

What is the cost of goods sold in 20X2?

Answer 8.4: 3,475.50 + 557 × 11.30 – 3,909.80 = 5,859.80

(cost of goods sold in 20X2 = inventory at year-end 20X1 + units bought in 20X2 × cost per unit in 20X2 – inventory at year-end 20X2)


Question 8.5: Inventory turnover in 20X1

What is the inventory turnover in 20X1?

Answer 8.5: 3,469.20 / ( (189 × 8.80 + 3,475.50) / 2) = 1.350

(inventory turnover = cost of goods sold / average inventory)


Question 8.6: Inventory turnover in 20X2

What is the inventory turnover in 20X2?

Answer 8.6: 5,859.80 / ( (3,475.50 + 3,909.80) / 2) = 1.587

(inventory turnover = cost of goods sold / average inventory)


Question 8.7: Gross profit margin in 20X1

What is the gross profit margin in 20X1?

Answer 8.7: 1 – 3,469.20 / (361 × 16.10) = 40.31%

(gross profit margin = 1 – cost of goods sold / net revenue)


Question 8.8: Gross profit margin in 20X2

What is the gross profit margin in 20X2?

Answer 8.8: 1 – 5,859.80 / (542 × 19.10) = 43.40%

(gross profit margin = 1 – cost of goods sold / net revenue)


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