Question

Cost Net realizable value Net realizable value less normal profit Market replacement cost 1 $7.60 9.05 8.50 7.70 2 $11.30 9.80 8.75 9.90 3 $11.65 12.40 11.00 12.70 4 $6.05 5.10 3.25 4.85 5 $7.60 6.90 5.80 4.50 Determine the proper unit inventory price in the above independent cases by applying the lower of cost or market rule. Case 1 $ Case 2 Case 3 Case 4 Case 5

Answer 1

Solution

Case 1	$       7.60
Case 2	$       9.80
Case 3	$    11.65
Case 4	$       4.85
Case 5	$       5.80

Working

	Cost	Replacement cost	NRV	NRV-NP	Market	Per unit Inventory Value
Case 1	$       7.60	$       7.70	$       9.05	$       8.50	$       8.50	$       7.60
Case 2	$    11.30	$       9.90	$       9.80	$       8.75	$       9.80	$       9.80
Case 3	$    11.65	$    12.70	$    12.40	$    11.00	$    12.40	$    11.65
Case 4	$       6.05	$       4.85	$       5.10	$       3.25	$       4.85	$       4.85
Case 5	$       7.60	$       4.50	$       6.90	$       5.80	$       5.80	$       5.80

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