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. Unit Price ($) Product Ending Inventory Beginning Ending A 500 0.17 0.21 B 50 1.40 1.80 C 100 4.50 4.20 D 40 12.00 13.20 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.) I

Answer 1

Answer:

105.35

Explanation:

The computation of Laspeyres Index is shown below:-

Laspeyres Index = 100 × (Sum(Ending × Ending Inventory) ÷ Sum(Beginning × Ending Inventory))

= 100 × ((500 × 0.21) + (50 × 1.80) + (100 × 4.20) + (40 × 13.20)) ÷ ((500 × 0.17) + (50 × 1.40) + (100 × 4.50) + (40 × 12)

= 100 × (105 + 90 + 420 + 528) ÷ (85 + 70 + 450 + 480)

= 100 × 1,143 ÷ 1,085

= 100 × 1.053

= 105.35

So, for computing the Laspeyres Index we simply applied the above formula.