Question

In: Accounting

Vaughn Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis....

Vaughn Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis.

Item No.

Quantity

Cost per Unit

Cost to Replace

Estimated Selling Price

Cost of Completion and Disposal

Normal Profit

1320 1,400 $3.30 $3.09 $4.64 $0.36 $1.29
1333 1,100 2.78 2.37 3.61 0.52 0.52
1426 1,000 4.64 3.81 5.15 0.41 1.03
1437 1,200 3.71 3.19 3.30 0.26 0.93
1510 900 2.32 2.06 3.35 0.82 0.62
1522 700 3.09 2.78 3.91 0.41 0.52
1573 3,200 1.85 1.65 2.58 0.77 0.52
1626 1,200 4.84 5.36 6.18 0.52 1.03


From the information above, determine the amount of Vaughn Company inventory.

The amount of Vaughn Company’s inventory

Solutions

Expert Solution

Let us begin by calculating the Net Realizable value(NRV) and Net Realizable value less normal profit.

Item no.

(a) Estimated selling price ($)

(b) Cost of completion and disposal ($)

(c)
NRV ($)

(a-b)

(d) Normal profit ($)

(e) NRV less normal profit ($)

(c-d)

1320 4.64 0.36 4.28 1.29 2.99
1333 3.61 0.52 3.09 0.52 2.57
1426 5.15 0.41 4.74 1.03 3.71
1437 3.30 0.26 3.04 0.93 2.11
1510 3.35 0.82 2.53 0.62 1.91
1522 3.91 0.41 3.5 0.52 2.98
1573 2.58 0.77 1.81 0.52 1.29
1626 6.18 0.52 5.66 1.03 4.63

Market value is taken to be the middle value of NRV, NRV less normal profit and the cost to replace

Let us calculate the value of inventory using lower of cost or market value rule on an individual item basis :

Item no. (a) NRV ($) (b) NRV less normal profit ($) (c) Cost to replace ($)

(d) Market value ($)

[ middle of a, b and c ]

(e) Cost per unit ($)

(f) Inventory value per unit ($)

[ lower of d and e ]

(g) Quantity

Total value of inventory ($)

[ f * g ]

1320 4.28 2.99 3.09 3.09 3.30 3.09 1,400 4,326
1333 3.09 2.57 2.37 2.57 2.78 2.57 1,100 2,827
1426 4.74 3.71 3.81 3.81 4.64 3.81 1,000 3,810
1437 3.04 2.11 3.19 3.04 3.71 3.04 1,200 3,648
1510 2.53 1.91 2.06 2.06 2.32 2.06 900 1,854
1522 3.5 2.98 2.78 2.98 3.09 2.98 700 2,086
1573 1.81 1.29 1.65 1.65 1.85 1.65 3,200 5,280
1626 5.66 4.63 5.36 5.36 4.84 4.84 1,200 5,808
Total 29,639

The amount of Vaughn Company's inventory is $29,639


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