Question

Two years ago Angle Company starting using dollar-value LIFO for costing its inventory. The first year the ending inventory in end-of-year dollars was $180,000 with a price index of 1.0. The second year the inventory was $270,000 and the index was 1.2. The current inventory at end of year prices is $387,000 and the price index is 1.25. Given this information, the ending inventory using dollar-value LIFO is

Answer 1

To calculate the ending inventory using dollar-value LIFO, adjust the ending inventory for each year by its price index to reflect base year costs, and then sum the adjusted values. The ending inventory for Angle Company using dollar-value LIFO is $264,600.

Step-by-step explanation:

The student has asked for the calculation of ending inventory using dollar-value LIFO (Last-In, First-Out) method of inventory cost determination under varying price levels. To find the ending inventory using dollar-value LIFO, we must adjust the ending inventory amounts by the corresponding price indices to find the inventory at base year cost, then apply the LIFO cost layering.

First year base-layer inventory at end-of-year dollars: $180,000 / 1.0 (price index) = $180,000.
Second year inventory addition at base year cost: ($270,000 / 1.2) - $180,000 = $45,000.
Current year inventory addition at base year cost: ($387,000 / 1.25) = $309,600. LIFO layer increase: $309,600 - $270,000 / 1.2 = $39,600.

The ending inventory using dollar-value LIFO is the sum of the base layer and the increases due to inflation adjusted for each year: $180,000 (base layer first year) + $45,000 (second year adjustment) + $39,600 (current year adjustment) = $264,600.

Answer 2

Angle Company

Given this information, the ending inventory using dollar-value LIFO is:

= $309,600.

Step-by-step explanation:

a) Data and Calculations:

Year Inventory value Price Index Inventory Value

using dollar-value

LIFO

1 $180,000 1.0 $180,000 ($180,000/1.0)

2 270,000 1.2 225,000 ($270,000/1.2)

3. 387,000 1.25 309,600 ($387,000/1.25)

b) The Inventory value using dollar-value LIFO converts the inventory value to the base year's value using the price index. It is an attempt to rebase the dollar value of the current ending inventory, using the changes in the price index.