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In: Accounting

Ross Electronics has one product in its ending inventory. Per unit data consist of the following:...

Ross Electronics has one product in its ending inventory. Per unit data consist of the following: cost, $25; replacement cost, $23; selling price, $35; selling costs, $8. The normal profit is 30% of selling price.

What unit value should Ross use when applying the lower of cost or market (LCM) rule to ending inventory?

Solutions

Expert Solution

Solution:

Unit Value of ending inventory = $ 23

Calculation:

1) Calculation of ceiling and floor

Product Selling Price (a) Selling cost (b) Net Realizable Value (a-b) [Ceiling Normal Profit NRV-Profit [Floor]
1 $                  35.00 $                                8.00 $                      27.00 $              10.50 $           16.50

2) Calculation of lower of cost or market

Product Replacement Cost Net Realizable Value (a-b) [Ceiling NRV-Profit [Floor] Market Value Original Cost Lower of Cost or Market
1 $              23.00 $               27.00 $            16.50 $    23.00 $    25.00 $    23.00

ekkarill92 answered 2 years ago
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