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Keller Company sells product ZR101 for $25 per unit. The cost of one unit of ZR101...

Keller Company sells product ZR101 for $25 per unit. The cost of one unit of ZR101 is $18. The estimated cost to complete a unit is $4, and the estimated cost to sell is $6. At what amount per unit should product ZR101 be reported, applying lower-of-cost-or-net realizable value?

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Expert Solution

Net realizable value

Net realizable value is a derivation of the estimated selling price of goods, minus some deductions. The derivation is used in the determination of the lower of cost or market for on-hand inventory items. The deductions from the estimated selling price are any reasonably predicatable costs of

  • Completing the inventory
  • Transporating the inventory
  • Disposing of the inventory

Thus, the formula for net realizable value is:

Inventory market value - Costs to complete and sell goods = Net realizable value

Thus from above formula

We get net realizable value of Product ZR101 = $25 - $4 - $6

net realizable value of Product ZR101 = $15 per unit;

Cost of Product ZR101 = $18 per unit ;

By applying Lower of Cost or Net realizable value whichever is lower for the valuation of Inventory of Product ZR101 is

Valuation reported for the Product ZR101 is at Net realizable value = $15 Per unit (Lower of Cost).

ekkarill92 answered 1 year ago
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