LCM, Dollar-Value LIFO, and Consignments
Response to the following problem:
Caddell Company, a wholesaler, purchases its inventories from various suppliers FOB destination; it incurs substantial warehousing costs. Caddell uses the dollar-value LIFO inventory cost flow method. Caddell also consigns some of its inventories to Reed Company.
Reed also has items for sale that it purchases from other wholesalers. Reed uses the lower of FIFO cost or market inventory method.
Required:
1. When are the purchases from various suppliers generally included in Caddell's inventory? Why?
2. Theoretically, how should Caddell account for the warehousing costs? Why?
3. a. Explain the advantages of using the dollar-value LIFO inventory cost flow method as opposed to the conventional quantity of goods LIFO method.
b. How does the calculation of dollar-value LIFO differ from the conventional quantity of goods method?
4. Explain how Caddell should account for the inventories consigned to Reed Company.
5. When Reed applies the lower of cost or market method, what are the ceiling and floor limits?