Question

In: Accounting

Forester Company has five products in its inventory. Information about the December 31, 2021, inventory follows....

Forester Company has five products in its inventory. Information about the December 31, 2021, inventory follows.

Product Quantity Unit
Cost
Unit
Replacement
Cost
Unit
Selling
Price
A 800 $ 13 $ 15 $ 19
B 600 18 14 21
C 500 6 5 11
D 900 10 7 9
E 600 17 15 16


The cost to sell for each product consists of a 20 percent sales commission. The normal profit for each product is 30 percent of the selling price.

Required:
1. Determine the carrying value of inventory at December 31, 2021, assuming the lower of cost or market (LCM) rule is applied to individual products.

Determine the carrying value of inventory at December 31, 2021, assuming the lower of cost or market (LCM) rule is applied to individual products. (Do not round intermediate calculations.)

Product (units) RC NRV NRV-NP Market Cost Inventory carrying value
A (800) $12,000
B (600) 8,400
C (500) 2,500
D (900) 6,300
E (600) 9,000
Total $0 $0 $0

Solutions

Expert Solution

Req.1

A B C D E F G
A ( A *Unit replacement cost) ( A * NRV PU) ( A * ( NRV- NP) Middle Value of B,C,D ( A * Unit Cost) Lower of E or F
Product (quantity) Replacement cost NRV NRV-NP Market Cost Inventory
A(800) 12,000 12,160 7,600 12,000 10,400 10,400
B(600) 8,400 10,080 6,300 8,400 10,800 8400
C(500) 2,500 4,400 2,750 2,750 3,000 2750
D(900) 6,300 6,480 4,050 6,300 9000 6,300
E(600) 9,000 7,680 4,800 7,680 10,200 7,680
Total 37,130 43,400 35,530

Working:

1) NRV : Selling price less cost to sell. Cost to sell = 20% of selling price

2) NRV less normal profit margin: Profit =30% of the selling price

3)

Product selling price NRV per unit NRV-NP
A 19 19-(20%×19) =15.2 15.2-(30%×19)=9.5
B 21 21-(20%×21)= 16.8 16.8-(30%×21)=10.5
C 11 11-(20%×11)=8.8 8.8-(30%×11)=5.5
D 9 9-(20%×9)=7.2 7.2-(30%×9)=4.5
E 16 16-(20%×16)=12.8 12.8-(30%×16)=8

4) Inventory value = Lower of cost or market.


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