Sandhill Company sells product 2005WSC for $135 per unit. The cost of one unit of 2005WSC...
Sandhill Company sells product 2005WSC for $135 per unit. The cost of one unit of 2005WSC is $132, and the replacement cost is $131. The estimated cost to dispose of a unit is $6, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?
| $132. |
| $75. |
| $129. |
| $131. |
Homework Answers
Solution
Sandhill Company
Determination of the amount per unit of the product 2005WSC to be reported applying lower-of-cost-or-market:
Net Realizable Value = selling price – cost to dispose
Selling price = $135
Cost to dispose = $6
NRV = 135 – 6 = $129
Replacement cost = $131
Cost = $132
Floor = NRV – profit margin = $129 – 40% x $135 = $75
The upper and lower limits - $129 and $75
The replacement cost cannot be used as this is above the upper limit of $129.
Also, the cost, $132 is higher than the upper limit of $129.
Hence, the product 2005WSC should be reported at Net Realizable Value of $129 per unit.
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