Dollar-Value LIFO--Comprehensive Kelly Company adopted dollar-value LIFO on Janu

Question

Dollar-Value LIFO--Comprehensive

Kelly Company adopted dollar-value LIFO on January 1, 2015, using two inventory pools each of which includes two types of inventory items. Kelly uses the double-extension method to compute the appropriate cost index. The following information about the inventory at the end of each year is available:

1. Compute the cost index for each year for each pool using a base of 100 for each index. Round each cost index to 4 decimal places.

2. Compute the dollar-value LIFO inventory at teh end of each year. Round inventory to the nearest dollar.

Pool 1 Pool 2 Number Average Cost Number Average Cost of Units Type per Unit 40,000 C 20,000 D 50,000 C 22,000 D 46,000 C 20,000 D 60,000 C 25,000 D Year of Unis Type per Unit $5 $10 20 2015 20,000 A 10,0008 2016 30,000 A 24 12 12,000B 2017 40,000 A 14,000 B 2018 45,000 A 13,000B 12 25 Required: I. Compute the cost index for each year for cach pool using a base of 100 for cad to 4 decimal places 2. Compute the dollar-value LIFO inventory at the end of each year. Round inve

Explanation / Answer

Cost index is the comparative umerical value to judge movement in the cost of inventory. The problem has two different pool. Pool 1 and Pool 2. Each pool has two different items A and B. For pool 2 two different items are C and D. Their cost index has been calculated below. Here index has been calculated for Pool 1 and Pool 2 separately. Then two pools are clubbed to calculate overall index.

Calculations are shown below. Index of 2015 is 100. It is base year. Other years index are based on this year.

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Answer 2:

LIFO will mean last in first out. So items purchased last are issued first. So year end invetory is includes oldest item bought. For instance in year 2016 there is 30,000 item A. In year 2015 it was 20,000 units. So 30,000 units of 2016 will include 20,000 item of 2015 at $10. Rest 10,000 item of year 2016 priced $11. In this manner calculations are made. It is shown below:

Cost Index of POOL 1 Year Type A TYPE B TC of COST INDEX Units AC TC Units AC TC POOL 1 OF POOL 1 2015 20,000 10 200000 10,000 20 200000 400000 100.00 2016 30,000 11 330000 12,000 24 288000 618000 154.50 2017 40,000 12 480000 14,000 22 308000 788000 197.00 2018 45,000 12 540000 13,000 25 325000 865000 216.25 Cost Index of POOL 2 Year Type C TYPE D TC of COST INDEX Units AC TC Units AC TC POOL 2 OF POOL 2 2015 40,000 5 200000 20,000 8 160000 360000 100.00 2016 50,000 7 350000 22,000 9 198000 548000 152.22 2017 46,000 6 276000 20,000 8 160000 436000 121.11 2018 60,000 7 420000 25,000 8 200000 620000 172.22 Combined cost index of pool 1 and pool 2 Year Total cost Total cost Total cost Index Pool 1 Pool 2 Pool1 $2 2015 400000 360000 760000 100 2016 618000 548000 1166000 153.421 2017 788000 436000 1224000 104.974 2018 865000 620000 1485000 121.324

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