Assistant Provident Fund Commissioner (APFC) 2016 recruitment test, advertisement 170. Transcribed from the Commission's own booklet (series A, B-CRHE-O-PAPA); answer as per the official UPSC final answer key. This question is in Part B. Answer last reviewed 24 August 2026.

Data regarding inventory of a particular item of usage in the production activities of an organization are : the quantity in stock is 1500 units and the value of this stock is ₹ 1,27,500. (This works out to an average unit cost of ₹ 85.) During the ensuing year X, an additional 300 units are purchased at a unit cost of ₹ 95. Consumption in production processes during the year X has been 600 units. Working by the First-In-First-Out basis, the value of the residual inventory of the item at the end of the year X will be

(a)₹ 1,00,000
(b)₹ 1,02,500
(c)₹ 1,05,000
(d)₹ 1,07,500

Answer

Why

Correct — C, (c) ₹ 1,05,000.

FIRST-IN-FIRST-OUT is a rule about WHICH COSTS LEAVE, not about which physical units leave. Under FIFO the earliest costs are charged out first, so what remains in stock is always the MOST RECENTLY PURCHASED material.

Set the year out in layers.

opening stock 1500 units @ ₹ 85 = ₹ 1,27,500 (the stem's own parenthesis confirms the ₹ 85) purchase 300 units @ ₹ 95 = ₹ 28,500 available 1800 units = ₹ 1,56,000 consumed 600 units closing stock 1200 units

Now apply the rule. The 600 units consumed are drawn from the OLDEST layer, so all 600 come out of the opening stock at ₹ 85, costing ₹ 51,000. The opening layer is reduced from 1500 to 900 units and the whole of the new purchase is untouched.

closing = 900 × ₹ 85 = ₹ 76,500 + 300 × ₹ 95 = ₹ 28,500 ───────── ₹ 1,05,000

Or equivalently, ₹ 1,56,000 available less ₹ 51,000 consumed = ₹ 1,05,000. That is option (c).

A BOUND THAT SETTLES THE WHOLE OPTION SET WITHOUT THE FULL WORKING. Every unit in the closing stock of 1200 cost either ₹ 85 or ₹ 95, so the closing value must lie between 1200 × 85 = ₹ 1,02,000 and 1200 × 95 = ₹ 1,14,000. And because only 300 units were ever bought at ₹ 95, the practical ceiling is 900 × 85 + 300 × 95 = ₹ 1,05,000. So the achievable range is ₹ 1,02,000 to ₹ 1,05,000 — and FIFO, which retains the newest and dearest units, lands exactly on the upper end of it.

THAT IS THE GENERAL RESULT WORTH KEEPING. When prices are rising, FIFO leaves the highest closing inventory value and charges the lowest cost to production, because the cheap old costs are the ones sent out.

The stem prints a whole parenthetical sentence inside itself with the full stop inside the bracket, hyphenates and capitalises First-In-First-Out at each element, uses the ₹ sign with a space and Indian digit grouping for money while leaving the unit counts unseparated, and calls the period 'the ensuing year X'. All as set.

Why the others are wrong

(a)₹ 1,00,000 — Impossible on the data, and it can be rejected before any method is chosen. There are 1200 units in closing stock and every one of them cost either ₹ 85 or ₹ 95, so the value cannot fall below 1200 × ₹ 85 = ₹ 1,02,000 whatever costing convention is used. A value of ₹ 1,00,000 implies an average unit cost of about ₹ 83·33, cheaper than the cheapest material the organisation ever held. It is the round number in a set that otherwise runs in steps of ₹ 2,500, and its function is to catch a candidate who has estimated rather than computed. Fixing the arithmetic bounds first — the lowest and highest values the stock could possibly carry — is a fast and reliable screen on every inventory question.
(b)₹ 1,02,500 — The value produced by getting the flow the wrong way round. Issue the 600 units from the NEWEST material instead of the oldest, as Last-In-First-Out would, and the whole 300-unit purchase leaves along with 300 of the opening units; the closing stock is then 1200 units all at ₹ 85, worth ₹ 1,02,000 — right beside this option. Read directly, ₹ 1,02,500 implies a closing stock of about 1150 units at ₹ 85 and only 50 at ₹ 95, which contradicts the method the stem names: under FIFO none of the 300 newly purchased units has been consumed, so all 300 must still be in stock. It is worth knowing that LIFO is not a permitted method under Indian inventory accounting standards, so the reversed answer is wrong in law as well as on the facts here.
(d)₹ 1,07,500 — Above the ceiling the purchases allow. To reach ₹ 1,07,500 the 1200 closing units would have to include about 550 valued at ₹ 95, but only 300 units were ever bought at that price, so no valuation consistent with the transactions can produce it. It is roughly where a candidate lands who values the closing stock at a simple average of the two rates — (85 + 95) ÷ 2 = ₹ 90, giving 1200 × 90 = ₹ 1,08,000 — which is not a recognised method at all, because it weights a 300-unit purchase equally with a 1500-unit opening balance. The proper averaging method, weighted average, would give ₹ 1,56,000 ÷ 1800 = ₹ 86·67 a unit and a closing value of ₹ 1,04,000; that is also not on offer, because the stem names FIFO and expects it to be used.

Concept

INVENTORY VALUATION exists because identical units are bought at different prices. When some are consumed and some remain, the accounts must decide which COSTS went out and which stayed, and the answer determines both the cost of production and the value of the closing stock. It is a COST FLOW ASSUMPTION and it need not correspond to the physical movement of the goods at all.

THE THREE CONVENTIONS:

FIRST-IN-FIRST-OUT (FIFO) — the earliest costs are charged out first, so the closing stock is valued at the most recent prices. Closing stock is therefore close to current replacement cost, while the cost charged to production is stale. LAST-IN-FIRST-OUT (LIFO) — the most recent costs are charged out first, so the charge to production is close to current cost and the closing stock is valued at old prices. LIFO is NOT permitted under Indian inventory accounting standards. WEIGHTED AVERAGE — a single average cost is struck over the pooled units and applied to both the issue and the balance, smoothing price movements. Permitted alongside FIFO.

WHAT EACH DOES WHEN PRICES RISE, which is the examinable comparison:

FIFO — lowest cost of goods sold, highest reported profit, highest closing stock value LIFO — highest cost of goods sold, lowest reported profit, lowest closing stock value weighted average — between the two on every measure

When prices fall, every one of those relations reverses. The reasoning to hold is simply which layer is being retained: FIFO retains the newest, LIFO retains the oldest.

THE ACCOUNTING STANDARD adds a constraint that sits on top of whichever convention is used. Inventory is carried at the LOWER OF COST AND NET REALISABLE VALUE, so a fall in the value of the goods themselves must be recognised even where the cost records say otherwise. Cost for this purpose includes purchase price, duties and taxes not recoverable, freight inward and other costs of bringing the inventory to its present location and condition; it excludes selling and distribution costs, abnormal waste and, ordinarily, storage after production is complete.

WHY IT MATTERS BEYOND THE LEDGER. The closing stock figure appears twice — as a current asset in the balance sheet and as a deduction in arriving at the cost of goods sold — so the choice of convention moves the reported profit directly, and with it tax and every ratio built on profit or on current assets.

The APFC paper carries a genuine accountancy and costing strand, asked at the level of someone who must read and check a set of accounts rather than compile one. Inventory valuation is one of its regular subjects, and the same construction recurs across the EPFO papers: an opening balance, one or two purchases at a different price, a stated consumption, and a named method.

What is being tested is whether the method is understood as a rule about COSTS rather than about goods. A candidate who thinks of FIFO as 'the oldest goods are used first' will usually still get the arithmetic right, but will be defeated by the standard follow-up — the comparison question, which asks what FIFO does to reported profit when prices are rising. The cost-flow formulation answers both.

This stem is unusually helpful in one respect and awkward in another. It is helpful because it inserts its own check in parentheses: ₹ 1,27,500 over 1500 units really is ₹ 85 a unit, so the opening layer is confirmed before you start. It is awkward because it writes money with the rupee sign and Indian digit grouping while writing the unit counts plain, and it names the period 'the ensuing year X', which makes for a dense read of a problem that is arithmetically light.

The strongest habit for this family of questions is to bound the answer first. Closing units multiplied by the cheapest rate and by the dearest rate give a range; on this item that range immediately excludes two of the four options, and knowing that FIFO retains the dearest units places the answer at the top of it. The full layer working then merely confirms what the bounds already showed.

Key facts

FIFO is a COST FLOW ASSUMPTION: the earliest costs are charged out first, so the closing stock is carried at the most recent purchase prices.
Here 1500 units at ₹ 85 plus 300 at ₹ 95 make 1800 units worth ₹ 1,56,000; the 600 consumed come entirely from the ₹ 85 layer at a cost of ₹ 51,000.
The closing stock is therefore 900 units at ₹ 85 plus 300 at ₹ 95 = ₹ 76,500 + ₹ 28,500 = ₹ 1,05,000.
When prices are rising, FIFO gives the lowest cost of goods sold, the highest reported profit and the highest closing stock value; every relation reverses when prices fall.
Weighted average on the same figures would give ₹ 1,56,000 ÷ 1800 = ₹ 86·67 a unit and a closing value of ₹ 1,04,000.
LIFO would leave 1200 units all at ₹ 85, worth ₹ 1,02,000 — and LIFO is not a permitted method under Indian inventory accounting standards.
Inventory is carried at the LOWER of cost and net realisable value, whichever cost formula is used.
The cost of inventory includes purchase price, non-recoverable duties and freight inward, but excludes selling and distribution costs and abnormal waste.
The closing stock figure appears both as a current asset and as a deduction in computing the cost of goods sold, so the choice of method moves reported profit directly.

Study next

FIFO, LIFO and weighted average compared on the same data, and the effect of each on cost of goods sold, closing stock and reported profit under rising and falling prices.Accounting Standard 2 on inventory valuation: what enters the cost of inventory, what is excluded, and the lower-of-cost-and-net-realisable-value rule.Perpetual and periodic inventory systems, and why the weighted average rate differs between them.The cost of goods sold identity — opening stock plus purchases less closing stock — and how a valuation error propagates into two successive years' profits.Inventory control techniques: economic order quantity, reorder level, and ABC analysis.Stock turnover and holding-period ratios, and how the valuation convention feeds into them.

Common traps

Treating FIFO as a statement about physical goods rather than about costs, which leaves the comparison questions on profit unanswerable.
Reversing the flow and valuing the closing stock at the oldest rates, which is LIFO — a method Indian standards do not permit.
Averaging the two purchase RATES instead of taking a weighted average, which ignores the very different sizes of the two layers.
Failing to bound the answer. Closing units times the cheapest rate and times the dearest rate give a range that usually excludes half the options.
Valuing the units consumed when the question asks for the value of the units remaining, or the reverse.
Forgetting that the whole of the recent purchase survives under FIFO whenever consumption is smaller than the opening balance.

Inventory valuation appears on EPFO papers in two forms and both are worth preparing. The computational form gives an opening balance and one or two dated purchases at different rates, states an issue or a sale, names a method, and asks for the value of the closing stock or of the material consumed; the arithmetic is small and the discrimination is whether the layers are peeled from the right end. The conceptual form asks what a named method does to profit, to closing stock or to the cost of goods sold when prices move in a stated direction, or which costs may be included in the value of inventory under the accounting standard. Option sets in the computational form are usually evenly spaced around the answer, so a bound on the possible values — closing units at the lowest and at the highest rate held — screens them quickly.

Related PYQs

EPFO_APFC_2023_Q80

Consider the following information : [table] Date | Particulars | Units | Rate per unit (in ₹) Jan. 1 | Inventory in hand | 200 | 7 Jan. 8 | Purchases | 1100 | 8 Jan. 25 | Purchases | 300 | 9 Jan. 6 | Issued for sale | 100 | — Jan. 9 | Issued for sale | 200 | — Which one of the following is the value of inventory on January 31 under perpetual inventory system using Last-In-First-Out (LIFO) method?

(a) ₹ 6,600
(b) ₹ 8,600
(c) ₹ 10,600
(d) ₹ 12,000

Answer(c) ₹ 10,600

The same construction on the later APFC paper — an opening balance and two dated purchases at rising rates, with the closing stock to be valued on a named method.

EPFO_EOAO_2023_Q76

Which of the following is included in the ‘Cost of Inventory’ according to Accounting Standard-2 (Inventory Valuation) :

(a) Administrative overheads that do not contribute to bringing the inventories to their present location and condition
(b) Storage costs which are necessary in the production process prior to a further production stage
(c) Selling and distribution costs
(d) Duties and taxes paid on purchases, subsequently recoverable by the enterprise from the Tax Authorities

Answer(b) Storage costs which are necessary in the production process prior to a further production stage

Which costs may be included in the 'cost of inventory' under Accounting Standard 2 — the conceptual counterpart to this computational item.

EPFO_APFC_2016_Q62

Consider an industry with the following features : • Budgeted monthly fixed cost = ₹ 2,20,000 • Normal monthly output = 12000 per standard labour hour • Standard variable overhead rate = ₹ 25 per labour hour What would be the total factory overhead rate ?

(a) ₹ 40·33 per labour hour
(b) ₹ 41·67 per labour hour
(c) ₹ 42·67 per labour hour
(d) ₹ 43·33 per labour hour

Answer(d) ₹ 43·33 per labour hour

The factory overhead rate item on this paper: the other costing computation here, and likewise a question about which figure is combined with which rather than about heavy arithmetic.

Practice

practice — not a real PYQ
A store holds an opening balance of 400 units at ₹ 50 each and then purchases 200 units at ₹ 60 each. During the period 300 units are issued to production. On the First-In-First-Out basis, what is the value of the closing stock ?
- (a)₹ 15,000
- (b)₹ 16,000
- (c)₹ 17,000
- (d)₹ 18,000
Answer(c) ₹ 17,000 — the 300 units issued come from the oldest layer at ₹ 50, costing ₹ 15,000, so the 300 units remaining are 100 at ₹ 50 and the whole untouched purchase of 200 at ₹ 60, giving ₹ 5,000 + ₹ 12,000 = ₹ 17,000. The figure ₹ 15,000 is the value of the material issued rather than of the material left.
practice — not a real PYQ
In a period of steadily rising purchase prices, valuing closing inventory by the First-In-First-Out method rather than by the weighted average method will
- (a)give a lower closing stock value and a higher cost of goods sold
- (b)give a higher closing stock value and a lower cost of goods sold
- (c)leave both the closing stock value and the cost of goods sold unchanged
- (d)give a higher closing stock value and a higher cost of goods sold
Answer(b) give a higher closing stock value and a lower cost of goods sold — FIFO charges out the earliest and therefore cheapest costs and retains the most recent and dearest ones, so the stock left on the balance sheet is dearer and the charge to production is cheaper than under an average. Since closing stock is deducted in arriving at the cost of goods sold, the two effects are two sides of one movement, which is why option (d) cannot be right.

Why