Question
In: Accounting
Determine the lower of cost or market inventory valuation on the basis of the following facts:
Determine the lower of cost or market inventory valuation on the basis of the following facts: quantity, 1500 units; cost per unit, $4.45; replacement cost, $4.40; selling price, $5.75; cost to complete and sell, $65; normal profit, $1.00
Solutions
Expert Solution
Answer:-
| Upper Limit | Selling price | $5.75 | |
| Less:-Cost to complete & sell | $0.65 | ||
| Net realizable value (upper limit) | $5.10 | ||
| Lower Limit | Net realizable value (NRV) | $5.10 | |
| Less:- Normal profit | $1.00 | ||
| NRV less profit (lower limit) | $4.10 |
Explanation:-1)- If replacement cost is between the upper ($5.10) and lower ($4.10)
limits, compare replacement cost to cost in deciding on the lower of cost or market. Here replacement cost ($4.40) is between the upper & lower limits, hence should be compared to cost ($4.40) and inventory should be valued at the lower ($4.40) of these between two comparables.
2.)If replacement cost exceeds the upper limit, then the upper limit is used to compare to cost in determining lower of cost or market.
3)If replacement cost is lower than the lower limit, then the lower limit is used to compare to cost in determining lower of cost or market.
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247
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126
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106
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202
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236
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