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After having elected the LIFO method, Mountain State Ford
continued to use replacement cost, determined in the same manner
as it had calculated it prior to that election, in valuing its
ending parts inventory for financial statement and Federal tax
purposes. However, Mountain State Ford used replacement cost in
that valuation process as the starting point in determining its
ending parts inventory under the dollar-value LIFO method; i.e.,
it used replacement cost in the computation of the total current-
year cost of items making up its parts pool under section 1.472-
8(e)(2)(ii), Income Tax Regs. (current-year cost of its parts
pool). After computing such current-year cost, Mountain State
Ford computed an annual price index designed to measure the
change in the cost of parts from one year to the next. That
index was computed by reference to, inter alia, the respective
manufacturers' prices each week for parts carried by Mountain
State Ford in its parts inventory and the respective manufactur-
ers' prices for such parts as of the end of the preceding week.
At the time Mountain State Ford adopted the LIFO method, it
made no attempt to determine whether it could have modified its
perpetual inventory recordkeeping system so that it could have
used invoice prices in valuing its parts inventory. Nor did it
determine whether it could have created a new inventory record-
keeping system that could have used invoice prices in that val-
uation process. Instead, Mountain State Ford continued to use
replacement cost in valuing its parts inventory under the LIFO
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