Question

You assemble the following information for Marigold Department Store, which computes its inventory under the dollar-value...

You assemble the following information for Marigold Department Store, which computes its inventory under the dollar-value LIFO method. Cost Retail Inventory on January 1, 2017 $234,946 $297,400 Purchases 401,388 483,600 Increase in price level for year 9% Compute the cost of the inventory on December 31, 2017, assuming that the inventory at retail is (a) $293,600 and (b) $363,406

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Answer #1

Cost

Retail

Ratio

Inventory

234,946

297,400

79

Purchases

401,388

483,600

83

1) With 9% price level, inventory = $293,600 / 1.09 = 269,358

It is lesser than the $297,400 beginning inventory thus inventory at cost :

269,358 * 79% = 212,793

　

2) With 9% price level, inventory = $363,406 / 1.09 = 333,400

Thus there an increase of $36,000 (= $333,400 - $297,400 = 26,000)

New layer at retail: 36,000 * 1.09 = 39,240

New layer at cost: 39,240 * 83% = 32,569.20

Plus base layer: 234,946

Inventory at cost : 234,946 + 32,569.20 = 267,515.20

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