Question

A). What method of inventory is used for the other 60% and 56% of total Inventories 2015 2014 Finished Good 382,925 303,249 Work In Process 76,524 60,588 Raw mat 72,246 49,844 Inventories At current Cost 531,695 413,681 Less L1FO Valuation (83,829) (88,368) Total Inventories 447,866 325,313 B). Explain the meaning of each of the numbers listed in the table.

Answer 1

(a)        FIFO is probably used for the rest of inventories. Companies using LIFO must disclose the value of those inventories as if FIFO had been used, which has done in this case.

(b)        Finished goods include inventories that are complete and ready for sale. Work in process is comprised of inventories currently in the manufacturing process, but not yet complete. Raw materials and supplies have not been put in the manufacturing process. The amount closest to current cost would be the FIFO inventory value. Under FIFO, the first goods purchased are assumed sold, so the last goods purchased would be included in the inventory valuation and would have been purchased at amounts closest to current costs. The LIFO valuation reduction is a result of the impact of inflation on inventory values. Since the first goods purchased using LIFO remains in inventory, LIFO inventories would be valued at a lower amount than FIFO inventories during an inflationary period. inventories are lower in 2015, ($447,866) than they would have been if reported using FIFO ($531,695)