In: Accounting
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.)
|
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.