ITPEC FE Morning October 2023 Question 78
The following inventory statement of Build-Up Property Company describes the status of the company’s inventory since the beginning of the year 2014. When the company uses a first-in-first-out (FIFO) method for inventory asset valuation, what is the inventory value at the end of the year 2014?
Explanation
7,600 — under FIFO the oldest units are sold first, so the ending inventory is the newest 600 units.
- •Units available: 100 + 500 + 400 = 1,000; sold 400, so 600 remain
- •Sold first: all 100 units of beginning inventory at 10, then 300 units of Purchase #1 at 14
- •Left: 200 units of Purchase #1 and all 400 of Purchase #2
- •Ending inventory: 200 × 14 + 400 × 12 = 2,800 + 4,800 = 7,600
Answer (b)
Why not others:
- •(a) 7,080 — matches no valuation method; even the weighted average gives 12,800 ÷ 1,000 × 600 = 7,680
- •(c) 7,800 — prices all 600 units at 13, the plain average of the two purchase prices 14 and 12, ignoring which units actually remain
- •(d) 8,000 — the LIFO result: selling the newest 400 units at 12 leaves 100 × 10 + 500 × 14 = 8,000
Key rule: FIFO removes the oldest layers first, so the ending inventory is valued at the most recent purchase prices; LIFO does the opposite.
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