Concept explainers
Dollar-value LIFO retail
• LO9–5
On January 1, 2018, the Brunswick Hat Company adopted the dollar-value LIFO retail method. The following data are available for 2018:
Cost | Retail | |
Beginning inventory | $ 71,280 | $ 132,000 |
Net purchases | 112,500 | 255,000 |
Net mark-ups | 6,000 | |
Net markdowns | 11,000 | |
Net sales | 232,000 | |
Retail price index, 12/31/2018 | 1.04 |
Required:
Calculate the estimated ending inventory and cost of goods sold for 2018.
Dollar-Value-LIFO: This method shows all the inventory figures at dollar price rather than units. Under this inventory method, the units that are purchased last, are sold first. Thus, it starts from the selling of the units recently purchased and ending with the beginning inventory.
To Estimate: the ending inventory and cost of goods sold for 2018.
Explanation of Solution
Calculate the amount of estimated ending inventory and cost of goods sold for 2018.
Details | Cost ($) | Retail ($) |
Beginning inventory | 71,280 | 132,000 |
Add: Net purchases | 112,500 | 255,000 |
Net markups | 6,000 | |
Less: Net markdowns | (11,000) | |
Goods available for sale – Excluding beginning inventory | 112,500 | 250,000 |
Goods available for sale – Including beginning inventory | 183,780 | 382,000 |
Less: Net sales | (232,000) | |
Estimated ending inventory at current year retail prices | 150,000 | |
Estimated ending inventory at cost | (77,004) | |
Estimated cost of goods sold | 106,776 |
Table (1)
Working notes:
Calculate base layer cost-to retail percentage.
Calculate current year layer (2018) cost-to retail percentage.
Calculate the amount of estimated ending inventory at cost.
Ending inventory at dollar-value LIFO retail cost | ||||
Step 1 | Step 2 | Step 3 | ||
Ending inventory at year-end retail prices ($) | Ending inventory at base year retail prices ($) | Inventory layers at base year retail prices ($) | Inventory layers converted to cost ($) | |
150,000 (refer Table 1) | 144,231(3) | 132,000 (Base) (4) | 71,280 (6) | |
12,231 (2018) (5) | 5,724(7) | |||
Total ending inventory at dollar-value LIFO retail cost | $77,004 |
Table (2)
Calculate the amount of ending inventory at base year retail prices.
Calculate the amount of inventory layers at base year retail prices.
Calculate the amount of inventory layers at current year retail prices.
Calculate the amount of inventory layers converted to cost (Base).
Calculate the amount of inventory layers converted to cost (2018).
Therefore, the ending inventory and cost of goods sold for 2018 using dollar-value LIFO retail method are $77,004 and $106,776 respectively.
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Chapter 9 Solutions
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