The IPIC Method Revisited: A Simplified Explanation and Illustration of the Inventory Price Index Computation (IPIC) Method

The inventory price index computation (IPIC) method determines inventory values under the LIFO inventory method by utilizing a calculated inventory price index (IPI) based on the consumer price indexes (CPI) or producer price indexes (PPI) published by the United States Bureau of Labor Statistics (BLS).   Why use external indexes under the IPIC method to value inventory? There are two principal answers to this question: IRS acceptance and simplification.  Because the IPIC method uses external government published indexes rather than indexes that are a result of a business’ internal prices,  the IRS understands its LIFO methodology and actually approves of the method.  In addition, the IPIC method is easy to implement.  It eliminates the need to track price changes for all of its many thousands of inventory items, thereby significant reducing internal recordkeeping.   All that is required is a detailed inventory listing linked to PPI or CPI categories to compute current year inflation.  Since beginning indexes from the prior year are already known, the company only needs to populate year-end indexes.  To learn how to apply this method, please see the article,  The IPIC Method Revisited: A Simplified Explanation and Illustration of the Inventory Price Index Computation (IPIC) Method.

About William Brighenti

William Brighenti is a Certified Public Accountant, Certified QuickBooks ProAdvisor, and Certified Business Valuation Analyst. Bill began his career in public accounting in 1979. Since then he has worked at various public accounting firms throughout Connecticut. Bill received a Master of Science in Professional Accounting degree from the University of Hartford, after attending the University of Connecticut and Central Connecticut State University for his Bachelor of Arts and Master of Arts degrees. He subsequently attended Purdue University for doctoral studies in Accounting and Quantitative Methods in Business. Bill has instructed graduate and undergraduate courses in Accounting, Auditing, and other subjects at the University of Hartford, Central Connecticut State University, Hartford State Technical College, and Purdue University. He also taught GMAT and CPA Exam Review Classes at the Stanley H. Kaplan Educational Center and at Person-Wolinsky, and is certified to teach trade-related subjects at Connecticut Vocational Technical Schools. His articles on tax and accounting have been published in several professional journals throughout the country as well as on several accounting websites. William was born and raised in New Britain, Connecticut, and served on the City's Board of Finance and Taxation as well as its City Plan Commission. In addition to the blog, Accounting and Taxes Simplified, Bill writes a blog, "The Barefoot Accountant", for the Accounting Web, a Sift Media publication.
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