Question

\( I= \) 2 What type of weighted aggregate price index must be developed for the LIFO inventory valuation? Laspeyres Index Paasche index

Answer 1

For LIFO inventory valuation, the Laspeyres price index is used, which measures changes in cost based on base period prices and quantities.

Step-by-step explanation:

When dealing with the Last-In, First-Out (LIFO) inventory valuation method, a specific type of weighted aggregate price index must be developed. The appropriate index to use in this context is the Laspeyres price index, which is designed to measure the changes in the total cost of purchasing a specified basket of goods and services, based on the prices of those goods and services in a base period. The Laspeyres index uses the quantities from the base period as weights, making it particularly suitable for the LIFO method where the oldest costs are maintained in the inventory records, while the most recent costs are the first to be charged to the cost of goods sold.

Answer 2

For LIFO inventory valuation, the commonly used weighted aggregate price index is the Laspeyres Index, which uses base-period quantities for weighing and is consistent with the LIFO principle.

Step-by-step explanation:

The type of weighted aggregate price index that must be developed for the LIFO (Last-In, First-Out) inventory valuation is commonly the Laspeyres Index. The Laspeyres Index uses base-period quantities as weights and compares the total cost of purchasing a set of goods at current prices with the total cost at base-period prices. This index is often preferred for LIFO inventory valuation because it reflects the prices of goods that were historically purchased and are now being 'used up' or sold first, in accordance with the LIFO principle.