Textbook Problem

Inventory Write-Down, Dollar-Value LIFO, and Consignments

Caddell Company, a wholesaler, purchases its inventories from various suppliers FOB destination. It incurs substantial warehousing costs. Caddell uses the dollar-value LIFO inventory cost flow method, ('added also consigns some of its inventories to Reed Company.

Reed also has items for sale that it purchases from other wholesalers. Reed values its inventory at the lower of LIFO cost or market.

Required:

1. When are the purchases from various suppliers generally included in Caddell's inventory? Why?

2. Theoretically, how should Caddell account for the warehousing costs? Why?

3.

1. a. Explain the advantages of using the dollar-value LIFO inventory cost flow method as opposed to the conventional quantity of goods LIFO method,
2. b. How does the calculation of dollar value LIFO differ from the conventional quantity of goods method?

4. Explain how Caddell should account for the inventories consigned to Reed Company.

5. When Reed applies the lower of cost or market rule, what are the ceiling and floor limits?