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CFA Level I · CFA Level I Exam · Analysis of Inventories

A US GAAP company using LIFO reports ending inventory of 800,000 and a LIFO reserve of 150,000. Beginning inventory was 700,000 with a LIFO reserve of 100,000. Reported COGS is 2,000,000. Ignoring taxes, COGS on a FIFO basis is closest to:

FIFO cost of goods sold is about 1,950,000. The LIFO reserve rose by 50,000, which means FIFO COGS is lower than LIFO COGS by that amount when prices rise. Subtracting the change in the reserve from 2,000,000 gives 1,950,000.

  1. A1,950,000Correct
  2. B2,050,000
  3. C2,150,000

Explanation

COGS (FIFO) = COGS (LIFO) - change in LIFO reserve = 2,000,000 - (150,000 - 100,000) = 1,950,000. Adding the change instead gives 2,050,000, a sign error. 2,150,000 wrongly adds the ending reserve.

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