IPA IP 2025 Question 5
A question IPA Japan published in 令和7年度 ITパスポート試験 公開問題 問5, translated into English. ITPEC is based on the same exams.
Company A purchases and sells Product B. In a certain period, the purchase unit price of Product B kept rising from the beginning of the period, and was highest at the end of the period. When the cost of sales for the period is calculated as “beginning inventory + purchases of goods for the period − ending inventory,” how do the ending inventory and the cost of sales of Product B change when the purchase unit price at the end of the period is used for calculating the ending inventory, compared with the case where the average of the purchase unit prices during the period is used?
Explanation
Ending inventory up, cost of sales down — the units left are valued at the highest price, and whatever ending inventory gains, the cost of sales loses.
Prices rose all period, so the end-of-period unit price is above the period's average. The same number of units left over is therefore valued higher: the ending inventory increases. Beginning inventory and purchases do not depend on the valuation, and the ending inventory is subtracted in the formula, so the cost of sales falls by exactly that increase.
For example, with beginning inventory 1,000, purchases of 100 units each at 11, 12 and 13 (3,600) and 120 units left:
Answer (c)
Why not others:
- •(a) — both cannot rise: with beginning inventory and purchases fixed, a larger ending inventory means a smaller cost of sales
- •(b) — with rising prices the end price differs from the average, so the valuation changes both figures
- •(d) — the reverse; the end price is the highest, so it raises the inventory value rather than lowering it
Key rule: Cost of sales = beginning inventory + purchases − ending inventory, so a higher valuation of ending inventory lowers the cost of sales by the same amount (and raises profit).
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This question comes from the past questions IPA Japan publishes, translated into English by ITPEC Practice. ITPEC Practice is an independent study tool and is not affiliated with IPA or ITPEC. See the original paper (PDF) or Report an issue.