Question

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 10. Product Inventory Quantity Cost Per Unit Market Value per Unit (Net Realizable Value) Class 1: Model A 300 $140 $125 Model B 500 90 112 Model C 150 60 59 Class 2: Model D 800 120 115 Model E 400 140 145 a. Determine the value of the inventory at the lower of cost or market applied to each item in the inventory. Inventory at the Lower of Cost or Market Product Inventory Quantity Cost per Unit Market Value per Unit (Net Realizable Value) Cost Market Lower of Cost or Market Model A $ $ $ $ $ Model B Model C Model D Model E Total $ $ $

Answer 1

Answer:

Product        Quantity              LCM                          Total

Model A           300                  $125                         $37,500

Model B           500                   $90                           $45,00

Model C           150                    $59                           $8,850

Model D           800                  $115                         $92,000

Model E           400                  $140                         $56,000

Explanation:

Product        Quantity        Cost Per Unit         Market Value (NRV)

Class 1:

Model A           300                  $140                         $125

Model B           500                   $90                          $112

Model C           150                    $60                          $59

Class 2:

Model D          800                  $120                          $115

Model E           400                  $140                         $145

When a company records inventory at lower of cost or market value, it will record its inventory at whichever price is lower. E.g. if NRV is lower than purchase cost, then inventory is recorded at NRV. If purchase cost is lower than NRV, then inventory will be recorded at purchase cost.

Models B and E should be recorded at purchase cost while models A, C and D should be recorded at NRV.

Product        Quantity               LCM                        Total

Class 1:

Model A           300                  $125                         $37,500

Model B           500                   $90                           $45,00

Model C           150                    $59                           $8,850

Class 2:

Model D           800                  $115                         $92,000

Model E           400                  $140                         $56,000