Question

Coronado 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			$84,600			100
Dec. 31, 2014			130,186			119
Dec. 31, 2015			125,256			136
Dec. 31, 2016			148,029			147
Dec. 31, 2017			168,112			158
Dec. 31, 2018			199,916			164

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.

Answer 1

Calculate ending inventory (Dollar value LIFO )
1) Calculate value of ending inventory of current year at base year prices :
Value of current year ending inventory at current prices / price index of current year
2013	84600/1.00		$                                       84,600.00
2014	130186/1.19		$                                     109,400.00
2015	125256/1.36		$                                       92,100.00
2016	148029/1.47		$                                     100,700.00
2017	168112/1.58		$                                     106,400.00
2018	199916/1.64		$                                     121,900.00
2) Calculate Quantity increase / decrease in real dollar times :
2013	84600-84600	$                   -
2014	109400-84600	$   24,800.00
2015	92100-109400	$ (17,300.00)
2016	100700-92100	$      8,600.00
2017	106400-100700	$      5,700.00
2018	121900-106400	$   15,500.00
3) Convert real dollar quantity increase/decrease at current year prices :
Real dollar quantity increase in inventory *current year price index
[a]	[b]	[c]	[c]*[d]
2013
2014	24800	1.19	29512
2015	-17300	1.19	-20587
2016	8600	1.47	12642
2017	5700	1.58	9006
2018	15500	1.64	25420
In 2015 price index of 2013 has been used as no layer is formed because ending invenntory of 2015 at base price is less than beginning inventory at base price.
4) Calculate the ending inventory :
Year ended	Ending inventory	Price index	Ending inventory at base year	Quantity increase in real dollars from prior years	Real dollar increase at current prices	Inventory under dollar value LIFO method
			[1]	[2]	[3]	[4]
2013	84600	100	84600	$                                                                                              -	0	84600
2014	130186	119	109400	$                                                                               24,800.00	29512	114112
2015	125256	136	92100	$                                                                             (17,300.00)	-20587	93525
2016	148029	147	100700	$                                                                                 8,600.00	12642	106167
2017	168112	158	106400	$                                                                                 5,700.00	9006	115173
2018	199916	164	121900	$                                                                               15,500.00	25420	140593
Inventory under dollar value LIFO method			$140,593