The following three tables present different possible scenarios for XYZ company's inventory of material x using Periodic Incremental LIFO.
Example 1 describes basic Periodic Incremental LIFO calculations.
| Period | Delta Qty. | Weighted Average for year | LIFO Calculations: yearly quantities remaining at Weighted Average | LIFO Item cost (total inventory/total quantity) |
| 1995 | +5 | 20 | 1995 5 * 20 =100 | 100/5 =20 |
| 1996 | +5 | 23 | 1995 5 * 20 =100 1996 5 * 23 =115 Total Qty. 10 Total Inv. 215 | 215/10 =21.5 |
| 1997 | -4 | 24 | 1995 5 * 20 =100 1996 1 * 23 = 23 Total Qty. 6 Total Inv. 123 | 123/6 =20.50 |
| 1998 | +3 | 25 | 1995 5 * 20 =100 1996 1 * 23 = 23 1998 3 * 25 = 75 Total Qty. 9 Total Inv. 198 | 198/9 =22 |
In the first year (1995), XYZ company purchased 100 units of material x. Five units (the delta) remain at the end of the year, and their various costs average out to 20.
Because there is only one year to consider, the total quantity is the same as the delta quantity for the year and the weighted average item cost is the same as the LIFO item cost. At the end of the year, the 5 remaining units constitute the initial LIFO period cost layer.
A new layer for 1996 of 5 units at weighted average cost 23 is added. Since the delta for the year is positive, the 1995 layer remains unchanged.
The LIFO item cost equals the total inventory divided by the total quantity.
In 1997, since the quantity on hand decreased by 4 units, no new layer is created for the year and the last 4 units were subtracted from the most recent year, 1996, at the weighted average cost of 23.
With a positive delta, a new layer for 1998 is added and the previous layers remain unchanged.
Example 2 describes when total inventory is depleted.
| Period | Delta Qty. | Weighted Average for year | LIFO Calculations: yearly quantities remaining at Weighted Average | LIFO Item cost (total inventory/total quantity) |
| 1995 | +5 | 20 | 1995 5 * 20 =100 | 100/5 =20 |
| 1996 | +5 | 23 | 1995 5 * 20 =100 1996 5 * 23 =115 Total Qty. 10 Total Inv. 215 | 215/10 =21.5 |
| 1997 | -10 | 24 | Total Qty. 0 Total Inv. 0 | N/A |
| 1998 | +3 | 25 | 1998 3 * 25 = 75 Total Qty. 3 Total Inv. 75 | 75/3 =25 |
In 1997, all units in inventory were issued. The total inventory valuation is 0.
If the total inventory is depleted, as in 1997, then the range of periods that are included in calculations restarts with the next period that includes a positive total inventory balance. The effect is seen in 1998, where only period cost layers for 1998 are used for calculation. Subsequent calculations will include period cost layers for 1998 and forward until the next time that the total inventory is depleted.
Example 3 illustrates a situation where a market value is used.
| Period | Delta Qty. | Weighted Average for year | LIFO Calculations yearly quantities remaining at Weighted Average Or new market value and inventory | LIFO Item cost (total inventory/total quantity) or new market value |
| 1995 | +5 | 20 | 1995 5 * 20 =100 | 100/5 =20 |
| 1996 | +5 | 23 | 1995 5 * 20 =100 1996 5 * 23 =115 Total Qty. 10 Total Inv. 215 | 215/10 =21.5 |
| 1997 | -4 | 24 | new market value 20.25 Total Qty. 6 Total Inv. 6 * 20.25 = 121.50 | new market value 20.25 |
| 1998 | +3 | 25 | 1997 6*20.25 = 121.50 1998 3 * 25 = 75 Total Qty. 9 Total Inv. 196.50 | 196.50/9 =21.83 |
In the year 1997, the market value (20.25) is lower than the calculated LIFO item cost of 20.50 (see calculation in Example 1). This market value replaces the LIFO item cost in the 1997 and prior period cost layers.
Note: Period cost layers are removed from the above tables for the purposes of explaining the calculations; however, they still remain in the system for possible auditing purposes.