The following information pertains to an inventory item: Cost $12.00 Estimated selling price 13.60 Estimated disposal...
The following information pertains to an inventory
item:
| Cost | $12.00 | |
| Estimated selling price | 13.60 | |
| Estimated disposal cost | .20 | |
| Normal gross margin | 2.20 | |
| Replacement cost | 10.90 |
Under the lower-of-cost-or-market rule, this inventory item should
be valued at
1. $10.70
2. $10.90
3. $11.20
4. $12.00
Homework Answers
Correct answer----------(3) $ 11.20
Working
| Cost | Replacement cost | NRV | NRV-NP | Market | Per unit Inventory Value |
| 12 | 10.9 | 13.4* | 11.2 | 11.2 | 11.2 |
*13.60-0.20= Net realizable value
.
| If we want to value inventory on the basis of lower of cost or market value then we have to first calculate market value. |
.
| To calculate market value an easy method is used in this question. We will take the middle value of the given below values to ascertain market value. |
| Replacement value | NRV | NRV minus Normal Profits |
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The following information pertains to an inventory
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