Question

The inventory of Royal Decking consisted of five products. Information about the December 31, 2021, inventory is as follows: Per Unit Selling Price $ 74 Replacement Cost 49 Product Cost $54 A 94 84 114 C 54 69 94 114 84 144 E 34 42 44 Selling costs consist of a sales commission equal to 15% of selling price and shipping costs equal to 5% of cost. The normal profit is 35% of selling price. Required: What unit value should Royal Decking use for each of its products when applying the lower of cost or market (LCM) rule to units of ending inventory? (Do not round intermediate calculations. Round final answers to 2 decimal places.)

Answer 1

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Solution: Cost LCM Items A $ 54 $ $ 94 $ $ 54 $ $ 114 $ $ 34 $ b) Lower (a or b) RC NRV NRV - NP Market value (Ceiling) (Floor) (middle value) Inventory Value 49 $ 60.20 $ 34.30 $ 49.00 $ 49.00 84 $ 92.20 $ 52.30 $ 84.00 $ 84.00 69 $ 77.20 $ 44.30 $ 69.00 $ 54.00 84 $116.70 $ 66.30$ 84.00 $ 84.00 42 $ 35.70 $ 20.30 $ 35.70 $ 34.00 E NRV = Selling price - Disposal cost Floor = NRV - Normal profit margin Market value = middle value of either RC or Floor or Ceiling