Richardson Company cans a variety of vegetable-type soups. Recently, the company decided to value its inventories using dollar-value LIFO pools. The clerk who accounts for inventories does not understand how to value the inventory pools using this new method, so, as a private consultant, you have been asked to teach him how this new method works.

He has provided you with the following information about purchases made over a 6-year period.

Ending Inventory

(End-of-Year Prices)

Date Price s Price Index

Dec. 31, 2016 $80,000 100

Dec. 31, 2017 111,300 105

Dec. 31, 2018 108,000 120

Dec. 31, 2019 128,700 130

Dec. 31, 2020 147,000 140

Dec. 31, 2021 174,000 145

You have already explained to him how this inventory method is maintained, but he would feel better about it if you were to leave him detailed instructions explaining how these calculations are done and why he needs to put all inventories at a base-year value.

Using your computation schedules as your illustration, write step-by-step set of instructions explaining how the calculations are done. Begin your explanation by briefly explaining the theory behind this inventory method, including the purpose of putting all amounts into base-year price levels.