FA Module 9 Inventory weighted average practice exam questions

covering units of inventory at year-end, units bought, units sold, inventory turnover, gross profit margin, cost of goods sold, net revenue

(The attached PDF file has better formatting.)

A firm buys inventory in Country W and resells it to customers in Country Z.

●    At year-end 20X0, the firm has 179 units of inventory costing 7.30 apiece.
●    In 20X1, the firm buys 495 units at 10.10 apiece and sells 431 units for 17.30 apiece.
●    In 20X2, the firm buys 585 units at 12.60 apiece and sells 544 units for 18.60 apiece.

The firm uses the weighted average inventory method.

Question 9.1: Inventory units at year-end 20X1

What are the units of inventory at year-end 20X1?

Answer 9.1: 179 + 495 – 431 = 243

(units of inventory at year-end 20X1 = units held at year-end 20X0 + units bought in 20X1 – units sold in 20X1)


Question 9.2: Inventory at year-end 20X1

What is the inventory at year-end 20X1?

Answer 9.2: 243 × (179 × 7.30 + 495 × 10.10) / (179 + 495) = 2,273.60

(inventory at year-end 20X1 = inventory units × weighted average cost)


Question 9.3: Inventory units at year-end 20X2

What are the units of inventory at year-end 20X2?

Answer 9.3: 243 + 585 – 544 = 284

(units of inventory at year-end 20X2 = units held at year-end 20X1 + units bought in 20X2 – units sold in 20X2)


Question 9.4: Inventory at year-end 20X2

What is the inventory at year-end 20X2?

Answer 9.4: 284 × (2,273.60 + 585 × 12.60) / (243 + 585) = 3,308.05

(inventory at year-end 20X2 = inventory units × weighted average cost)


Question 9.5: Cost of goods sold in 20X1

What is the cost of goods sold in 20X1?

Answer 9.5: 179 × 7.30 + 495 × 10.10 – 2,273.60 = 4,032.60

(cost of goods sold in 20X1 = units on hand at year-end 20X0 × cost per unit + units bought in 20X1 × cost per unit in 20X1 – inventory at year-end 20X1)


Question 9.6: Cost of goods sold in 20X2

What is the cost of goods sold in 20X2?

Answer 9.6: 2,273.60 + 585 × 12.60 – 3,308.05 = 6,336.55

(cost of goods sold in 20X2 = inventory at year-end 20X1 + units bought in 20X2 × cost per unit in 20X2 – inventory at year-end 20X2)


Question 9.7: Inventory turnover in 20X1

What is the inventory turnover in 20X1?

Answer 9.7: 4,032.60 / ( (1,306.70 + 2,273.60) / 2) = 2.253

(inventory turnover = cost of goods sold / average inventory)


Question 9.8: Inventory turnover in 20X2

What is the inventory turnover in 20X2?

Answer 9.8: 6,336.55 / ( (2,273.60 + 3,308.05) / 2) = 2.270

(inventory turnover = cost of goods sold / average inventory)


Question 9.9: Gross profit margin in 20X1

What is the gross profit margin in 20X1?

Answer 9.9: 1 – 4,032.60 / (431 × 17.30) = 45.92%

(gross profit margin = 1 – cost of goods sold / net revenue)


Question 9.10: Gross profit margin in 20X2

What is the gross profit margin in 20X2?

Answer 9.10: 1 – 6,336.55 / (544 × 18.60) = 37.38%

(gross profit margin = 1 – cost of goods sold / net revenue)