Ann Co. uses the dollar-value LIFO retail method. The beginning inventory, purchased when the price index was 100, had a retail value of $4,000 and a cost of $3,600. During the period, purchases amounted to $60,000 at retail ($52,800 at cost). Sales amounted to $56,300. The year-end price index was 110. What is the cost of ending inventory?

Question

Quizplus · Accepted Answer

To solve the problem, we need to follow these steps:

1. Calculate the cost-to-retail ratio at the beginning of the period:

Cost-to-retail ratio = Cost ÷ Retail = $3,600 ÷ $4,000 = 0.9

2. Calculate the ending inventory at retail:

Ending inventory at retail = Beginning inventory + Purchases - Sales
                                      = $4,000 + $60,000 - $56,300
                                      = $7,700

3. Calculate the ending inventory at cost using the dollar-value LIFO retail method:

Ending inventory at cost = Ending inventory at retail × Cost-to-retail ratio × Price index
                                          = $7,700 × 0.9 × 1.1
                                          = $6,504

Therefore, the cost of ending inventory is $6,504, which corresponds to answer choice B.

Ann Co Uses the Dollar-Value LIFO Retail Method