Question

Under the last-in, first-out (LIFO) inventory valuation method, a price index for inventory must be established for tax purposes.

The quantity weights are based on year-ending inventory levels.

Ending Unit Price ($)
Product Inventory Beginning Ending
A 500 0.15 0.21
B 50 1.60 1.80
C 100 4.50 4.20
D 40 12.00 13.40

Use the beginning-of-the-year price per unit as the base-period price and develop a weighted aggregate index for the total inventory value at the end of the year. (Round your answer to the nearest integer.)

Answer 1

The laspeyres method of weighted aggregate price index is used of LIFO inventory valuation, therefore laspeyres index number is 106.08

Explanation:

First of all we would have to perform the following table:

Product Ending Inventory(Q0) Begining(P0) Ending(P1) P0×Q0 P1×Q0

A 500 0.15 0.21 75 105

B 50 1.60 1.80 80 90

C 100 4.50 4.20 450 420

D 40 12.00 13.40 480 536

Total 1085 1151

Therefore, using laspeyres index number, we calculate the following:

laspeyres index number=(∑P1×Q0/∑P0×Q0)×100

laspeyres index number=(1151/1085)×100

laspeyres index number=106.08