Question

Presented below is information related to Sheffield Inc.’s inventory, assuming Sheffield uses lower-of-LIFO cost-or-market.

(per unit)		Skis		Boots		Parkas
Historical cost		$254.60		$142.04		$71.02
Selling price		284.08		194.30		98.83
Cost to distribute		25.46		10.72		3.35
Current replacement cost		272.02		140.70		68.34
Normal profit margin		42.88		38.86		28.48

Determine the following:

(a) The two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis. (Round answers to 2 decimal places, e.g. 52.75.)

Ceiling Limit
Floor Limit

(b) The amount that should be used in the lower-of-cost-or-market comparison of boots. (Round answers to 2 decimal places, e.g. 52.75.)

(c) The amount that should be used to value parkas on the basis of the lower-of-cost-or-market. (Round answers to 2 decimal places, e.g. 52.75.)

Answer 1

(a)
	Skis
Ceiling limit        = Selling price (-) Cost to distribute        =   $ 284.08 (-) $ 25.46	$ 258.62
Floor Limit          = Ceiling limit (-) Normal profit margin         = $ 258.62 (-) $ 42.88	$ 215.74
(b)
The cost amount that should be used in the lower-of-cost-or-market comparison of boots =	$ 142.04
(c )
The market amount that should be used in the lower-of-cost-or-market comparison of parkas         = Middle value of below 3., i.e Current replacement cost	$ 68.34
Workings :
Particulars	Amount (in $ )
Selling price	$ 98.83
Less: Cost to distribute	($ 3.35)
Ceiling limit	$ 95.48
Less: Normal profit margin	($ 28.48)
Floor Limit	$ 67
Ceiling limit	$ 95.48
Current replacement cost	$ 68.34
Floor Limit	$ 67