DOLLAR-VALUE LIFO RETAIL METHOD
Using the LIFO retail method but adding the dollar-value LIFO becomes the
Dollar-Value LIFO Retail Method.
On January 1, 2011, the May Department Store adopted the dollarvalue LIFO retail inventory method. Inventory transactions at both cost
and retail and cost indexes for 2011 and 2012 are as follows:
January 1, 2011
Net purchases
Net markups
Net markdowns
Net sales
2011
Cost
Retail
$16,000 $24,000
42,000 58,500
3,000
1,500
56,000
Price Index:
January 1, 2011
December 31, 2011
December 31, 2012
2012
Cost
Retail
45,000
58,700
2,400
1,100
57,000
1.00
1.08
1.15
Required:
Estimate the 2011 and 2012 ending inventory and cost of goods sold using
the dollar-value LIFO retail inventory method.
DOLLAR-VALUE LIFO RETAIL METHOD
1 – Determine ending inventory at retail
2 – Convert year end amount to base year retail amounts using price indices
3 – Compute the increase or decrease for the year (the layer)
4– Convert each layer from base year to year end prices using price index for each year
5 – Convert retail prices to cost using cost-to-retail % for each year
DOLLAR-VALUE LIFO RETAIL METHOD
2011
Beginning inventory
Plus: Net purchases
Net markups
Less: Net markdowns
Goods available for sale (excluding beg. inv.)
Goods available for sale (including beg. inv.)
Base layer
Cost-to-retail percentage:
Cost
$16,000
42,000
____
42,000
58,000
2012
Retail
Cost
$24,000 $17,456
58,500
45,000
3,000
(1,500)
____
60,000
45,000
84,000
62,456
Retail
$28,000
58,700
2,400
(1,100)
60,000
88,000
(56,000)
$28,000
(57,000)
$31,000
$16,000
= 66.67%
$24,000
2011
Cost-to-retail percentage:
$42,000
= 70%
$60,000
2012
Cost-to-retail percentage:
$45,000
= 75%
$60,000
Less: Net sales
Estimated ending inv. at current year retail
Less: Estimated ending inventory at cost (see below)
Estimated cost of goods sold
17,456
$40,544
18,345
$44,111
2013
Ending
Inventory
at Year-end
Retail Prices
Step 1
Ending
Inventory
at Base Year
Retail Prices
Step 2
Inventory
Layers
at Base Year
Retail Prices
Step 3
Inventory
Layers
Converted to
Cost
$28,000
$28,000
(above)
= $25,926
1.08
$24,000 (base) x 1.00 x 66.67% =
1,926 (2013) x 1.08 x 70.00% =
Total ending inventory at dollar-value LIFO cost
$16,000
1,456
$17,456
2014
Ending
Inventory
at Year-end
Retail Prices
Step 1
Ending
Inventory
at Base Year
Retail Prices
Step 2
Inventory
Layers
at Base Year
Retail Prices
Step 3
Inventory
Layers
Converted to
Cost
$31,000
$31,000
(above)
= $26,957
1.15
$24,000 (base) x 1.00 x 66.67% =
1,926 (2013) x 1.08 x 70.00% =
1,031 (2014) x 1.15 x 75.00% =
Total ending inventory at dollar-value LIFO cost
$16,000
1,456
889
$18,345