Question

The inventory of royal decking consisted of six products. The inventory of royal decking has developed the following data in order to calculate the lower of cost or net realizable value for its products. The products are listed individually in thousands) Products Selling Price Cost | 190 240 280 365 190 240 105 170 185 345 145 175 Replacement Cost 90 160 180 330 133 180 The disposal costs are 20% of the selling price and the normal profit margin on all product is 30% of the selling price. Required: a. Compute the lower of cost-or-net- realizable value by individual item classification, and in total. b. Prepare the journal entry to adjust inventory using total inventory approach.

Answer 1

a. Normal profit margin = 30% of the selling price

Disposal costs = 20% of selling price

Products	Cost (a)	Replacement cost (b)	Selling price (c)	Selling price - Disposal costs	Net Realizable value (d)	Per unit inventory value (a) or (d) **
A	105	90	190	190 - (190 *0.20)	152	105
B	170	160	240	240 -(240*0.20)	192	170
C	185	180	280	280 - (280 * 0.20)	224	185
D	345	330	365	365 - (365*0.20)	292	292
E	145	133	190	190 - (190*0.20)	152	145
F	175	180	240	240 - (240*0.20)	192	175
Total	1125	1073	1505		1204	1125

**Given that lower of cost or net realizable value