Question

Marigold Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residential swimming pools. The following inventory data is available for the month of March.

			Units		Price per Unit					Total
Residential Pumps
	Inventory at Feb. 28:		208			$	416			$	86,528
Purchases:
	March 10		520			$	468			$	243,360
	March 20		416			$	494			$	205,504
	March 30		312			$	520			$	162,240
Sales:
	March 15		520			$	562			$	292,240
	March 25		416			$	593			$	246,688
	Inventory at March 31:		520
Commercial Pumps
	Inventory at Feb. 28:		624			$	832			$	519,168
Purchases:
	March 3		624			$	936			$	584,064
	March 12		312			$	988			$	308,256
	March 21		520			$	1,040			$	540,800
Sales:
	March 18		936			$	1,123			$	1,051,128
	March 29		624			$	1,186			$	740,064
	Inventory at March 31:		520

In addition to the above information, due to a downturn in the economy that has hit Marigold’s commercial customers especially hard, Marigold expects commercial pump prices from March 31 onward to be considerably different (and lower) than at the beginning of and during March. Marigold has developed the following additional information.

		Commercial Pumps		Residential Pumps
Net realizable value (per unit)		$936		$603

The normal profit margin is 16.67% of cost. Marigold uses the FIFO accounting method.

Determine the dollar amount that Marigold should report on its March 31 balance sheet for inventory. Assume Marigold applies lower-of-cost-or-net realizable value at the individual product level.

Total amount of inventory

$

eTextbook and Media

Determine the dollar amount that Marigold should report on its March 31 balance sheet for inventory. Assume Marigold applies lower-of-cost-or-market at the major category level. Marigold places both commercial and residential pumps into the same (and only) category.

Total amount of inventory

$

eTextbook and Media

Answer 1

Marigold applies lower-of-cost-or-net realizable value at the individual product level.

residential

inventory remaining = 520 units

312 units @ 520 = $162240

208 units @ 494 = $102752

this is lower than $603

amount of inventory for residential pumps = $264992

Commercial

inventory remaining is 520 units

the cost price is higher

so value of inventory = $936 x 520 = $486720

Marigold places both commercial and residential pumps into the same (and only) category.

First the cost of residential pumps = $264992

cost of commercial pumps = $540800

total cost = $805792

NET REALIZABLE value

residential $313560

commercial $486720

total NRV = $800280

so total amount of inventory = $800280