Application of Statistical Sampling Techniques to Lifo Inventory Valuation.

Abstract Primary purpose of this paper is to produce, through statistical sampling methods, accurate estimates of current physical inventories valued in terms of base year costs. These estimates may be used either directly in last in, first out (Lifo) inventory computations, or they may be used to substantiate or to control base year cost inventory valuations. Other objectives, mentioned at the end of this paper, will not be discussed unless they relate directly to the inventory valuation program. In spite of the many controversies which have flared around Lifo inventory valuation during the past decade, one important phase has received comparatively little attention from users or their public accountants. The underlying principle of Lifo, valuing inventory on a base cost system for book and tax purposes, has been largely dependent upon indexes relating current to base year costs. In many cases these index methods of valuing inventory at base year costs (including total count techniques) are unnecessarily expensive. What is more important, they are frequently used, whatever their source, without explicit consideration of theft accuracy or the consequences of inaccuracy.