Question

On January 1, 2021, Avondale Lumber adopted the dollar-value LIFO inventory method. The inventory value for its one inventory pool on this date was $310,000. An internally generated cost index is used to convert ending inventory to base year. Year-end inventories at year-end costs and cost indexes for its one inventory pool were as follows: Year Ended Inventory Cost Index December 31 Year-End Costs (Relative to Base Year) 2021 $ 408,450 1.05 2022 420,740 1.09 2023 478,500 1.10 2024 513,585 1.13 Required: Calculate inventory amounts at the end of each year

Answer 1

Avondale Lumber

Calculation of Inventory Amounts at the end of each year:

= Inventory cost divided by the Index:

2021: = $408,450/1.05 = $389,000

2022: = $420,740/1.09 = $386,000

2023: = $478,500/1.10 = $435,000

2024: = $513,585/1.13 = $454,500

Step-by-step explanation:

a) Data and Calculations:

Year Ended Inventory Cost Index Year-End Costs

(Relative to Base Year)

2021 $ 408,450 1.05 $389,000 (408,450/1.05)

2022 420,740 1.09 $386,000 (420,740/1.09)

2023 478,500 1.10 $435,000 (478,500/1.10)

2024 513,585 1.13 $454,500 (513,585/1.13)

b) The conversion of the ending inventory cost to the base year with an index is obtained by dividing the inventory cost by the index. This gives a cost that is relative to the base year.