Question

Nash Company cans a variety of vegetable-type soups. Recently, the company decided to value its inventories using dollar-value LIFO pools. The clerk who accounts for inventories does not understand how to value the inventory pools using this new method, so, as a private consultant, you have been asked to teach him how this new method works.

He has provided you with the following information about purchases made over a 6-year period.

Date		Ending Inventory (End-of-Year Prices)				Price Index
Dec. 31, 2013			$72,900			100
Dec. 31, 2014			136,896			124
Dec. 31, 2015			133,906			142
Dec. 31, 2016			158,202			153
Dec. 31, 2017			180,345			165
Dec. 31, 2018			213,921			171

You have already explained to him how this inventory method is maintained, but he would feel better about it if you were to leave him detailed instructions explaining how these calculations are done and why he needs to put all inventories at a base-year value.

Compute the ending inventory for Richardson Company for 2013 through 2018 using dollar-value LIFO.

Ending inventory:

2013
2014
2015
2016
2017
2018

Answer 1

Dollar value LIFO method is used when the prices of the inventory is not stable
and is fluctuating from one period to another.
If the prices are fluctuating, then simply deducting sales from goods available for
sale and computing ending inventory is not correct. In this method the ending
inventory at retail is first deflated to base price to compute the actual increase or
decrease in the quantity of the inventory. If quantity in increased this increased
quantity is priced at new index to compute the new layer.
First of all we need to determine ending inventory at base year price.
For that we will divide the ending inventory at end of year prices by the price index
Date	Ending Inventory		Price Index	Ending Inventory
	(End-of-Year Prices)			(Base year Prices)
Dec. 31, 2013	$72,900	÷	100%	$72,900
Dec. 31, 2014	136,896	÷	124%	$110,400
Dec. 31, 2015	133,906	÷	142%	$94,300
Dec. 31, 2016	158,202	÷	153%	$103,400
Dec. 31, 2017	180,345	÷	165%	$109,300
Dec. 31, 2018	213,921	÷	171%	$125,100
	Compute ending Inventory under the dollar value LIFO method
Year	Ending Inventory at Base year cost	Layer at base year cost	Price Index	Ending Inventory at LIFO cost
2013	$72,900	$72,900	100%	$72,900
				$72,900
2014	$110,400	$72,900	100%	$72,900
		$37,500	124%	$46,500
				$119,400
2015	$94,300	$72,900	100%	$72,900
		$21,400	124%	$26,536
				$99,436
2016	$103,400	$72,900	100%	$72,900
		$21,400	124%	$26,536
		$9,100	153%	$13,923
				$113,359
2017	$109,300	$72,900	100%	$72,900
		$21,400	124%	$26,536
		$9,100	153%	$13,923
		$5,900	165%	$9,735
				$123,094
2017	$125,100	$72,900	100%	$72,900
		$21,400	124%	$26,536
		$9,100	153%	$13,923
		$5,900	165%	$9,735
		$15,800	171%	$27,018
				$150,112