The LIFO inventory method is not dependent upon the character of the business in which the taxpayer is engaged, or upon the identity or want of identity through commingling of any of the goods on hand, and may be adopted by the taxpayer as of the close of any taxable year.
Opening Inventory
Raw material | Goods in process | Finished goods | |
Raw material | $0.60 | $0.60 | $0.60 |
Processing cost | .10 | .20 | |
Overhead | .05 | .10 |
In the closing inventory there are 20 units of raw material, 6 units of goods in process, and 8 units of finished goods and the costs were: Raw material 10 cents, processing cost 4 cents, and overhead 1 cent.
Closing Inventory
[Based on cost and prior to adjustment]
Raw material | Goods in process | Finished goods | |
Raw material | $2.00 | $0.60 | $0.80 |
Processing costs | .12 | .32 | |
Overhead | .03 | .08 | |
Total | 2.00 | .75 | 1.20 |
There were 30 units of raw material in the opening inventory and 34 units in the closing inventory. The adjustment to the closing inventory would be as follows:
Closing Inventory as Adjusted
Raw material | Goods in process | Finished goods | |
Raw material: | |||
20 at 6 cents | $1.20 | ||
6 at 6 cents | $0.36 | ||
4 at 6 cents | $0.24 | ||
4 at 10 cents1 | .40 | ||
Processing costs | .12 | .32 | |
Overhead | .03 | .08 | |
Total | 1.20 | .51 | 1.04 |
1 This excess is subject to determination of price under section 472(b)(1) and § 1.472-2 . If the excess falls in goods in process, the same adjustment is applicable.
The only adjustment to the closing inventory is the cost of the raw material; the processing costs and overhead cost are not changed.
Raw material, 20 at 6 cents | $1.20 |
Goods in process: | |
15 at 6 cents | .90 |
5 at 10 cents1 | .50 |
Finished goods: | |
None at 6 cents | 0.00 |
10 at 10 cents1 | 1.00 |
1 This excess is subject to determination of price under section 472(b)(1) and § 1.472-2 .
The 20 units of raw material in the raw state plus 15 units of raw material in goods in process make up the 35 units of raw material that were contained in the opening inventory.
26 C.F.R. §1.472-1