CFA Level I · CFA Level I Exam · Analysis of Inventories
A US GAAP company uses LIFO. Its LIFO reserve rose from $40,000 to $55,000 during the year, and reported LIFO cost of sales was $600,000. Cost of sales if the company had used FIFO would be closest to:
FIFO cost of sales equals LIFO cost of sales less the increase in the LIFO reserve: $600,000 minus $15,000, or $585,000. A rising reserve means LIFO expensed more than FIFO would have.
- A$585,000Correct
- B$600,000
- C$615,000
Explanation
FIFO COGS = LIFO COGS − change in LIFO reserve = 600,000 − 15,000 = $585,000. Adding the change is the sign error behind $615,000.
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