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

Answer:

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

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.