Bob Richardson

Advantages of using the IPIC LIFO Method

Higher inflation indexes possible – Some companies have found CPI or PPI inflation rates to be consistently higher than their internal index inflation. For most large supermarket chains the advantage of using CPI vs. internal indexes has been substantial. An annual positive differential of 1% between CPI or PPI inflation and a company’s internal index inflation would reduce taxable income by $1 million annually for a company with $100 million in total inventory at FIFO cost at the beginning of a year.
Fewer pools possible – Supermarket chains not using IPIC LIFO are required to maintain as many as 12 pools. Supermarket chains using IPIC LIFO use between 3 and 6 pools because IPIC LIFO allows pooling based on the 8 different CPI Major Groups or 15 different 2-digit PPI codes and this is the number of pools typically required using this method. Having fewer pools will produce additional LIFO benefits because layer erosions are fewer since decreases in formerly separate pools will be offset by increases in others when pools are combined.

Index calculation simpler than internal index – Use of a published index precludes the need to calculate an internal index unless companies switch for tax LIFO only. Internal index calculations are usually a major undertaking and can be avoided if companies switch for book LIFO also. The IPIC LIFO weighted average index calculations can also be complicated if made manually but this problem is solved with automated LIFO software. Read our white paper on IPIC LIFO Advantages.