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Tamarisk, Inc. uses the dollar-value LIFO method of computing its inventory. Data for the past 3 years follow. Year Ended December 31 Inventory at Current-Year Cost Price Index 2019 $19,700 100 2020 21,828 107 2021 26,106 114 Compute the value of the 2020 and 2021 inventories using the dollar-value LIFO method.

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Answer:

Inventory 2020 = $21,149

Inventory 2021 = $24,896

Explanation:

Current-Year                  Cost               Price Index

2019                            $19,700                    100

2020                           $21,828                    107

2021                            $26,106                    114

Inventory value 2020

  • $21,828 / 1.07 = $20,400
  • $20,400 - $19,700 = $700 x 1.07 = $749
  • total $20,400 + $749 = $21,149

Inventory value 2021

  • $26,106 / 1.14 = $22,900
  • $22,900 - $21,149 = $1,751 x 1.14 = $1,996
  • total $22,900 + $1,996 = $24,896

When you use the dollar value LIFO, you must calculate the inventory in 2 layers, and them add them up.

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