Question

Grouper Wood Corporation manufactures desks. Most of the company’s desks are standard models that are sold at catalogue prices. At December 31, 2020, the following finished desks appear in the company’s inventory:

Finished Desks		Type A			Type B			Type C			Type D
2020 catalogue selling price		$460			$490			$890			$1,040
FIFO cost per inventory list, Dec. 31, 2020		440			440			860			860
Estimated current cost to manufacture (at Dec. 31, 2020, and early 2021)		460			440			790			1,000
Sales commissions and estimated other costs of disposal		40			65			95			130
2021 catalogue selling price		590			510			800			1,290
Quantity on hand		15			117			113			110

The 2020 catalogue was in effect through November 2020, and the 2021 catalogue is effective as of December 1, 2020. All catalogue prices are net of the usual discounts. Generally, the company tries to obtain a 20% gross margin on the selling price and it has usually been successful in achieving this.

(a)

Assume that the company has adopted a lower of FIFO cost and net realizable value approach for the valuation of inventories and applies it on an individual inventory item basis. At what total inventory value will the desks appear on the company’s December 31, 2020 SFP?

Inventory $.....................................................?

Answer 1

1. Calculation of FIFO cost of inventory

Particulars	Type A	Type B	Type C	Type D
FIFO cost per inventory as of Dec 31, 2020	$ 440	$ 440	$ 860	$ 860
No.of units on hand	15	117	113	110
Total Cost of inventory (A)	$ 6,600	$ 51,480	$ 97,180	$ 94,600

2. Calculation of Net Realizable value

Net realizable value = Estimated Selling price - Estimated Costs of completion - Estimated selling expenses

Particulars	Type A	Type B	Type C	Type D
Estimated Selling Price (2021 catalogue price)	$ 590	$ 510	$ 800	$ 1290
Less: Estimated Costs of completion	$20	$0	0	$140
Less: Estimated selling expenses	$40	$65	$95	$130
Net Realizable value	$530	$445	$705	$1020
Units on hand	15	117	113	110
Total Net Realizable value (B)	$7950	$52065	$79,665	$1,12,200

Note: Calculation of the estimated cost of completion

Particulars	Type A ($)	Type B ($)	Type C ($)	Type D ($)
FIFO cost price	440	440	860	860
Estimated Current cost of manufacture	460	440	790	1000
The estimated cost of completion	20	0	0	140

Total Inventory valued at

Particulars	Type A ($)	Type B ($)	Type C ($)	Type D ($)
FIFO Cost (A)	$ 6,600	$ 51,480	$ 97,180	$ 94,600
Net Realizable Value (B)	$7950	$52065	$79,665	$1,12,200
Lower of A or B	6600	51480	79665	94,600

Total Inventory = $ 232,345