Question

Oasis Company has used the dollar-value LIFO method for inventory cost determination for many years. The following data were extracted from Oasis’ records.

Price Ending Inventory Ending Inventory

Date Index at Base Prices at Dollar-Value LIFO

December 31, 2017 105 \(92,000 \)92,600

December 31, 2018 ? 97,000 98,350

Instructions

Calculate the index used for 2018 that yielded the above results.

Short answer

The index value for 2018 comes out to be 115.

Step-by-step solution

Layer for 2018 at dollar value LIFO

The layer is the difference between the ending inventory at base year price and opening inventory at base year price.

$$\begin{gathered} \mathbf{Amount}\mathbf{}\mathbf{of}\mathbf{}\mathbf{layer}\mathbf{}\mathbf{at}\mathbf{}\mathbf{dollar}\mathbf{}\mathbf{-}\mathbf{}\mathbf{value}\mathbf{-}\mathbf{LIFO}\mathbf{=}\mathbf{Ending}\mathbf{}\mathbf{inventory}\mathbf{}\mathbf{at}\mathbf{}\mathbf{dollar}\mathbf{}\mathbf{value}\mathbf{}\mathbf{LIFO}\mathbf{}\mathbf{\left(}\mathbf{2018}\mathbf{\right)}\mathbf{-}\mathbf{Ending}\mathbf{}\mathbf{inventory}\mathbf{}\mathbf{at}\mathbf{}\mathbf{dollar}\mathbf{}\mathbf{value}\mathbf{}\mathbf{LIFO}\mathbf{}\mathbf{\left(}\mathbf{2017}\mathbf{\right)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{98}\mathbf{,}\mathbf{350}\mathbf{-}\mathbf{\$}\mathbf{92}\mathbf{,}\mathbf{600} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{750} \end{gathered}$$

Layer for 2018 at base year prices

$$\begin{gathered} \mathbf{Amount}\mathbf{}\mathbf{of}\mathbf{}\mathbf{layer}\mathbf{}\mathbf{at}\mathbf{}\mathbf{base}\mathbf{}\mathbf{year}\mathbf{}\mathbf{prices}\mathbf{=}\mathbf{Ending}\mathbf{}\mathbf{inventory}\mathbf{}\mathbf{at}\mathbf{}\mathit{b}\mathit{a}\mathit{s}\mathit{e}\mathbf{}\mathit{y}\mathit{e}\mathit{a}\mathit{r}\mathbf{}\mathit{p}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\mathit{s}\mathbf{\left(}\mathbf{2018}\mathbf{\right)}\mathbf{-}\mathbf{Ending}\mathbf{}\mathbf{inventory}\mathbf{}\mathbf{at}\mathbf{}\mathit{b}\mathit{a}\mathit{s}\mathit{e}\mathbf{}\mathit{y}\mathit{e}\mathit{a}\mathit{r}\mathbf{}\mathit{p}\mathit{r}\mathit{i}\mathit{c}\mathit{e}\mathit{s}\mathbf{}\mathbf{\left(}\mathbf{2017}\mathbf{\right)} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{97}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{\$}\mathbf{92}\mathbf{,}\mathbf{000} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{000} \end{gathered}$$

Index value for 2018

$$\begin{gathered} \mathbf{Index}\mathbf{}\mathbf{=}\frac{\mathbf{Layer}\mathbf{}\mathbf{at}\mathbf{}\mathbf{dollar}\mathbf{}\mathbf{value}\mathbf{}\mathbf{LIFO}}{\mathbf{Layer}\mathbf{}\mathbf{at}\mathbf{}\mathbf{base}\mathbf{}\mathbf{year}\mathbf{}\mathbf{prices}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\frac{\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{750}}{\mathbf{\$}\mathbf{5}\mathbf{,}\mathbf{000}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{1}\mathbf{.}\mathbf{15}\mathbf{}\mathbf{or}\mathbf{}\mathbf{115}\mathbf{\%} \end{gathered}$$