Question

Herman Company has three products in its ending inventory. Specific per unit data at the end of the year for each of the products are as follows: Product Product Product $66 Cost Replacement cost Selling price Selling costs Normal profit $36 34 56 56 $106 101 136 41 46 65 15 zi Required: What unit values should Herman use for each of its products when applying the lower of cost or market (LCM) rule to ending inventory? Product Cost Replacement cost NRV Per Unit NRV - NP Market Inventory Value 1 2

Answer 1

Solution

	Cost	Replacement cost	NRV	NRV-NP	Market	Per unit Inventory Value
Product 1	$    36.00	$    34.00	$    51.00	$    30.00	$    34.00	$    34.00
Product 2	$ 106.00	$ 101.00	$    95.00	$    49.00	$    95.00	$    95.00
Product 3	$    66.00	$    56.00	$    50.00	$    22.00	$    50.00	$    50.00

Working

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