1. Describe the LIFO double extension method. Using the following information, compute the index at December 31, 2012, applying the double extension method to a LIFO pool consisting of 25,500 units of product A and 10,350 units of product B. The base year cost of product A is $10.20 and of product B is $37.00. The price at December 31, 2012, for product A is $21.00 and for product B is $45.60. (Round to two decimal places.)
2. As compared with the FIFO method of costing inventories, does the LIFO method result in a larger or smaller net income in a period of rising prices? What is the comparative effect on net income in a period of falling prices?
3. What is the dollar value method of LIFO inventory valuation? What advantage does the dollar value method have over the specific goods approach of LIFO inventory valuation? Why will the traditional LIFO inventory costing method and the dollar value LIFO inventory costing method produce different inventory valuations if the composition of the inventory base changes?