Question

Part A Santana Rey of Business Solutions is evaluating her inventory to determine whether it must be adjusted based on lower of cost or market rules. Business Solutions has three different types of software in its inventory, and the following information is available for each. Per Unit Inventory Items Units Cost Market Office productivity 8 $ 76 $ 78 Desktop publishing 7 102 105 Accounting 8 98 95 Required: Compute the lower of cost or market for ending inventory assuming Rey applies the lower of cost or market rule to each product in inventory. Must Rey adjust the reported inventory value? Part B Selected accounts and balances for the three months ended March 31, 2020, for Business Solutions follow. Beginning inventory, January 1 $ 0 Cost of goods sold 40,014 Ending inventory, March 31 2,106 Compute inventory turnover and days’ sales in inventory for the three months ended March 31, 2020.

Answer 1

Part 1

Items	Per Unit [A]	Units Cost [B]	Market [C]	Total cost [D= A*B]	Total market [E = A*C]	LCM applied [Lower of D or E]
Office productivity	8	76	78	608	624	608
Desktop publishing	7	102	105	714	735	714
Accounting	8	98	95	784	760	760
Totals				2,106	2,119	2,082

LCM applied as whole
Inventory value [lower of 2106 or 2119]	2,106
Ray should not adjusted the reported inventory value.	NO
LCM applied as each product
Inventory value (total of LCM column)	2,082
Ray should adjusted the reported inventory value. (because the inventory value of 2082 is less than total cost of 2106.)	Yes

Part 2

Numerator	Denominator	Answer
Cost of goods sold	Average inventory ((0+2106)/2)	Inventory turnover
40014	1053	38	times

Number of day's in three months (31+29+31)

91

Numerator	Denominator	Answer
Average inventory ((0+2106)/2)	Daily average cost of goods sold (40014/91)	Day's sales in inventory
1053	440	2.39	days

Alternative method

Numerator	Denominator	Answer
Number of days in three months	Inventory turnover	Day's sales in inventory
91	38	2.39	days