(Internal Indexes—Dollar-Value LIFO) On January 1, 2012, Bonanza Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Bonanza continued to use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Bonanza uses internal conversion price indexes and the multiple pools approach under which substantially identical inventory items are grouped into LIFO inventory pools. The following data were available for inventory pool no. 1, which comprises products A and B, for the 2 years following the adoption of LIFO.

Â	Â	FIFO Basis per Records	Â
Â	Units	Unit Cost	Total Cost
Inventory, 1/1/12	Â	Â	Â
Product A	10,000	$30	$300,000
Product B	9,000	25	225,000
Â	Â	Â	$525,000
Inventory, 12/31/12	Â	Â	Â
Product A	17,000	36	$612,000
Product B	9,000	26	234,000
Â	Â	Â	$846,000
Inventory, 12/31/13	Â	Â	Â
Product A	13,000	40	$520,000
Product B	10,000	32	320,000
Â	Â	Â	$840,000

Instructions

(a) Prepare a schedule to compute the internal conversion price indexes for 2012 and 2013. Round indexes to two decimal places.

(b) Prepare a schedule to compute the inventory amounts at December 31, 2012 and 2013, using the dollar-value LIFO inventory method.

P8-11 (Dollar-Value LIFO) 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.

Date	Ending Inventory (End-of-Year Prices)	Price Index
Dec. 31, 2008	$ 80,000	100
Dec. 31, 2009	111,300	105
Dec. 31, 2010	108,000	120
Dec. 31, 2011	128,700	130
Dec. 31, 2012	147,000	140
Dec. 31, 2013	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.

Instructions

(a) Compute the ending inventory for Richardson Company for 2008 through 2013 using dollar-value LIFO.

(b) Using your computation schedules as your illustration, write a 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.