Suppose that Badger's 2011 ending inventory, valued at year-end costs, was $153,600 and that the relative cost index for this inventory in 2011 was 1.20. What inventory balance would Badger report on its 12/31/11 balance sheet?
A)$128,000
B)$129,800
C)$153,600
D)None of these is correct $153,600/1.20 = $128,000.This includes the first two layers, the first at $100,000 and the second at $20,000, plus another at $8,000 from 2010.No additional layers are added in 2011 because the inventory in base year terms actually decreased in 2011.To get the 12/31/11 balance, the three layers are multiplied by their relative price indexes of 1.00, 1.05, and 1.10, respectively.

Question

Quizplus · Accepted Answer

Using the relative cost index of 1.20, we need to divide the ending inventory value of $153,600 by 1.20 to get the base-year value of $128,000. This includes the first two layers, the first at $100,000 and the second at $20,000, plus another at $8,000 from 2010. To get the 12/31/11 balance, the three layers are multiplied by their relative price indexes of 1.00, 1.05, and 1.10, respectively. Therefore, the correct balance sheet inventory value is $129,800.

Suppose That Badger's 2011 Ending Inventory, Valued at Year-End Costs