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

question 55

Multiple Choice

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.

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