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Ross Electronics has one product in its ending inventory. Per unit data consist of the following: cost, $20

Ross Electronics has one product in its ending inventory. Per unit data consist of the following: cost, $20; replacement cost, $18; selling price, $30; selling costs, $4. 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

Determine market value as follows:

Market value is the middle value of Replacement cost, NRV (or Ceiling), and NRV – NP (or Floor).

• Replacement cost is $18 per unit.

• Calculate NRV (or Ceiling) per unit as follows:

NRV(or Ceiling) = Selling price – Selling cost

                             = $30 - $4

                             = $26

 

Therefore, NRV (or Ceiling) is $26 per unit.

 

• Calculate NRV-NP (or Floor) as follows:

NRV-NP (or Floor) = NRV – (30% of Selling price)

= $26 – (30% × $30)

= $17

 

Therefore, NRV-NP (or Floor) is $17 per unit.

 

Therefore, market value equals $18 i.e., middle value of ($18, $26, and $17).

 

Cost per unit is $20.

Market value per unit is $18.

 

Therefore, R should use $18 as unit value i.e., Lower of $20 (cost) or $18 (market) when applying the lower of cost or market (LCM) rule to ending inventory.

Therefore, R should use $18 as unit value i.e., Lower of $20 (cost) or $18 (market) when applying the lower of cost or market (LCM) rule to ending inventory.

Junaid answered 2 years ago
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