What is the Double Extension Method?

The double extension method is used to obtain a price index from a representative sample of the items in stock. The index is calculated by measuring the inventory sample at its current-year and base-year costs and comparing the two figures. The name of this method comes from the use of two extension calculations – one at current-year and the other at base-year costs. This index is used in the calculation of dollar value LIFO.

When to Use the Double Extension Method

The double extension method is most applicable when there has been little change in the characteristics of the inventory during the measurement period. Conversely, it should not be used when there has been a large amount of turnover among the types of inventory being held in stock.