Question

Under dollar-value LIFO each layer in ending inventory at LIFO cost is calculated by:

a. multiplying the layer at base-year prices by the price index for the year the layer was added.
b. multiplying the layer at current-year prices by the current year price index.
c. dividing the layer at current-year prices by the current year price index.
d. dividing the layer at base-year prices by base-year price index.

Answer 1

In dollar-value LIFO, inventory layers are calculated by multiplying base-year layer costs by the respective year's price index.

Step-by-step explanation:

Under dollar-value LIFO, each layer in ending inventory at LIFO cost is calculated by a. multiplying the layer at base-year prices by the price index for the year the layer was added. This calculation adjusts the base-year layer costs to reflect the inflation or deflation rates applicable at the time the inventory layer was formed. Economists use price indices and designate a base year with an index number of 100 to simplify the comparison of price levels over time.