Question

The following information concerns four items that Modern Woman Clothiers has in its ending inventory on December 31. Two of these items are in the accessories department, and two are in the women CEO department Realizable value Quantity Unit Cost 249 $28 $31 159 Accessories Item 620 Item 621 Women CEO Item 726 Item 727 199 101 139 1. What is the valuation of ending inventory if the firm uses the lower of cost or net realizable value method and applies it on an item by-item basis? 2. If the company applies the lower of cost or net realizable value method on the basis of total cost or total net realizable value, what is the value of ending inventory? 3. If the company elects to apply the lower of cost or net realizable value method to inventory groups, what is the value of the ending Inventory?

Answer 1

Solution 1:

Inventory at lower of cost or market by Item
Item by Item	Quantity	Unit cost	Net Realizable value	Total Cost	Total Net Realizable value	Lower of cost or market
Accessories:
Item 620	249	$28	$31	$6,972	$7,719	$6,972
Item 621	159	$54	$51	$8,586	$8,109	$8,109
Total Accessories				$15,558	$15,828	$15,081
Women CEO:
Item 726	109	$94	$101	$10,246	$11,009	$10,246
Item 727	139	$45	$44	$6,255	$6,116	$6,116
Total Women CEO				$16,501	$17,125	$16,362
Totals				$32,059	$32,953	$31,443
Ending Inventory Valuation		$31,443

Solution 2:

Total cost or net realizable value of ending inevntory
Total Cost	$32,059
Total Net realizable Value	$32,953
Ending Inventory Valuation	$32,059

Solution 3:

By Groups
	Total Cost	Total Net Realizable value	Lower of cost or Total NRV
Accessories	$15,558	$15,828	$15,558
Women CEO	$16,501	$17,125	$16,501
Ending Inventory Valuation			$32,059