Question

You assemble the following information for Seneca Department Store, which computes its inventory under the dollar-value LIFO method.

Cost Retail

Inventory on January 1, 2020 $216,000 $300,000

Purchases 364,800 480,000

Increase in price level for year 9%

Compute the cost of the inventory on December 31, 2020, assuming that the inventory at retail is (a) $294,300 and (b) $365,150.

Answer 1

The student's inquiry revolves around the application of the dollar-value LIFO method to calculate inventory cost with a price level increase, requiring adjustment of LIFO layers and using inventory price indices for accurate valuation.

Step-by-step explanation:

The student's question deals with computing the cost of inventory using the dollar-value LIFO method under different retail inventory scenarios. The calculations involve adjusting the inventory cost based on a given price level increase for the year. As the inventory value changes, the LIFO layers must be adjusted to reflect the new cost levels.

For example, if the inventory at retail on December 31, 2020 is $294,300, to determine the cost of the ending inventory using the dollar-value LIFO method, one would first calculate the inventory price index for the year (which would be 1 + the increase in price level, or 1.09 in this case since there's a 9% increase), and then apply this index to adjust the LIFO layers of the inventory. A similar process would be followed if the inventory at retail is $365,150.

Calculations involving long lists of products and more realistic prices are often complex, resulting in messy-looking numbers that make the importance of accurate index numbers and inventory valuation methods very clear.

Answer 2

To compute the cost of the inventory on December 31, 2020 using the dollar-value LIFO method, consider the increase in price level for the year and use the given formula. For a retail value of $294,300, the cost of the inventory is approximately $344,267.65. For a retail value of $365,150, the cost of the inventory is approximately $429,176.81.

Step-by-step explanation:

To compute the cost of the inventory on December 31, 2020 using the dollar-value LIFO method, we need to consider the increase in price level for the year. The increase in price level is given as 9%.

To determine the cost of the inventory on December 31, 2020, we can use the following formula:

Cost of inventory = (Cost of inventory on January 1, 2020 + Purchases) × (Retail value on December 31, 2020 / Retail value on January 1, 2020) × (1 + Increase in price level)

(a) For a retail value of $294,300, the cost of the inventory on December 31, 2020 would be approximately $344,267.65.

(b) For a retail value of $365,150, the cost of the inventory on December 31, 2020 would be approximately $429,176.81.