Question

SLR Corporation has 900 units of each of its two products in its year-end inventory. Per unit data for each of the products are as follows: Product 1 Product 2 $68 $52 66 44 Cost Replacement cost Selling price Selling costs Normal profit 88 54 1 Determine the carrying value of SLR's inventory assuming that the lower of cost or market (LCM) rule is applied to individual products. What is the before-tax income effect of the LCM adjustment? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Determine the carrying value of SLR's inventory assuming that the lower of cost or market (LCM) rule is applied to individual products. Product Cost Market Per Unit Inventory Value Unit Cost Lower of Cost or Market 2 39,600 900 900 Cost Inventory value

Answer 1

Solution 1:

Computation of Market Value
Replacement cost (1)	Net realisable value (2)*	Net realisable value - Normal profit (3)	Market Value (Middle value of 1, 2 or 3)
66	64	36	64
44	47	36	44
*Net realizable value = Selling price - Selling cost

Product	Cost	Market	Per unit Inventroy value	Units	cost (Units*cost)	Lower of Cost or NRV (units*per unit inventory value)
1	68	64	64	900	61200	57600
2	52	44	44	900	46800	39600
			Cost		108000
			Inventory value			97200

Solution 2:

Before tax income effect = Decrease = $108000- $97200 = $10,800