Question

Assume in each case that the selling expenses are $8 per unit and that the normal profit is $5 per unit. Calculate the limits for each case. Then enter the amount that should be used for lower of cost or market.

		Selling Price			Upper Limit		Replacement Cost			Lower Limit		Cost		LCM
(a)		$59			$		$43			$		$47		$
(b)		47					36					40
(c)		60					44					45
(d)		48					42					40

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Answer 1

Correct Answer:

	Selling price	Upper limit	Replacement Cost	Lower limit	Cost	LCM
A	$ 59.0	$ 51.0	$ 43.0	$       46.0	$              47.0	$       46.0
B	$ 47.0	$ 39.0	$ 36.0	$       34.0	$              40.0	$       36.0
C	$ 60.0	$ 52.0	$ 44.0	$       47.0	$              45.0	$       45.0
D	$ 48.0	$ 40.0	$ 42.0	$       35.0	$              40.0	$       40.0

Working:

	A	B	C=A-B	D	E=C-D
	Selling price	selling expense	Upper limit	Normal profit	Lower limit
A	$       59.0	$      8.0	$     51.0	$         5.0	$    46.0
B	$       47.0	$      8.0	$     39.0	$         5.0	$    34.0
C	$       60.0	$      8.0	$     52.0	$         5.0	$    47.0
D	$       48.0	$      8.0	$     40.0	$         5.0	$    35.0

Market value is taken as the middle value of Upper limit, NRV and Lower limit. As follows

	Upper limit	Replacement Cost	Lower limit		Market value
A	$   51.0	$     43.0	$       46.0		$       46.0
B	$   39.0	$     36.0	$       34.0		$       36.0
C	$   52.0	$     44.0	$       47.0		$       47.0
D	$   40.0	$     42.0	$       35.0		$       40.0

Lower of cost or market value (LCM) is the lower value in between Market value and cost, as follows:

	A	B	C =MIN(A,B)
	Market value	Cost	LCM
A	$       46.0	$       47.0	$       46.0
B	$       36.0	$       40.0	$       36.0
C	$       47.0	$       45.0	$       45.0
D	$       40.0	$       40.0	$       40.0

End of Answer.

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