CFA Level I · CFA Level I Exam · Analyzing Income Statements
A retailer began the year with no inventory. It bought 100 units at 10 each in January, then 100 units at 12 each in June. It sold 150 units during the year. Under the weighted average cost method (single periodic calculation), cost of goods sold is closest to:
Weighted average cost per unit is 2,200 divided by 200 units, or 11. Multiplying by the 150 units sold gives cost of goods sold of about 1,650. Using only the early or only the latest layers would give different, incorrect figures.
- A1,500
- B1,650Correct
- C1,700
Explanation
Total cost = 1,000 + 1,200 = 2,200 for 200 units, so average cost is 11. COGS = 150 x 11 = 1,650. FIFO would give 1,000 + 50 x 12 = 1,600; 1,500 uses the oldest cost only and 1,700 is LIFO (1,200 + 500).
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