Question

Opera Corp. uses the dollar-value LIFO method of computing its inventory cost. Data for the past three years is as follows: Dec 31, 20X0, Inventory at end-of-year prices = $65,000 (price index = 1.00); Dec 31, 20X1, Inventory at end-of-year prices = $126,000 (price index = 1.05); Dec 31, 20X2, Inventory at end-of-year prices = $135,000 (price index = 1.10). What is the 20X0 inventory balance using dollar-value LIFO?

a. $65,000.
b. $61,904.
c. $122,727.
d. $135,000

Answer 1

a. $65,000.

Step-by-step explanation:

since the price index for year 20x0 is 1, then the inventory balance using dollar value LIFO = $65,000 / 1 = $65,000.

Dollar value LIFO works in cost layers, or pools of inventory.

E.g. the 20x1 inventory would be worth:

($126,000 / 1.05) = $120,000

($120,000 - $65,000) x 1.05 = $57,750

value of 20x1 inventory = $65,000 + $57,750 = $122,750