Question

willy world began using dollar value LIFO for costing its inventory teo years ago. the ending inventory for the past two years in the end of year dollars was $120000 and $180000 and the year end price indice were 1.0 and 1.2 respectively. assuming the current inventory at the end of year prices queals $258000 and the index for the current year is 1.25, what is the ending inventory using dollar-value LIFO?

Answer 1

Under the dollar value LIFO method, the value of inventory would be previous year inventory + a layer of increase in inventory.

Previous year ending inventory = 180,000

Layer = 33,000*

Dollar value LIFO inventory = 213,000

* Steps for computing the layer.

First of all, we need to compute the value of ending inventory at base-year-prices. It is computed using the following formula:

= 258,000/1.25

= 206,400

Now we can compute the real-dollar quantity increase in inventory:

= (206,400 – 180,000)

= 26,400

The next step is to value this real dollar quantity increase in inventory at year-end-prices:

= 26,400 x 1.25

= 33,000.