Crane 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: | 202 | $ | 404 | $ | 81,608 | |||||||
Purchases: | ||||||||||||
March 10 | 505 | $ | 455 | $ | 229,775 | |||||||
March 20 | 404 | $ | 480 | $ | 193,920 | |||||||
March 30 | 303 | $ | 505 | $ | 153,015 | |||||||
Sales: | ||||||||||||
March 15 | 505 | $ | 545 | $ | 275,225 | |||||||
March 25 | 404 | $ | 576 | $ | 232,704 | |||||||
Inventory at March 31: | 505 | |||||||||||
Commercial Pumps | ||||||||||||
Inventory at Feb. 28: | 606 | $ | 808 | $ | 489,648 | |||||||
Purchases: | ||||||||||||
March 3 | 606 | $ | 909 | $ | 550,854 | |||||||
March 12 | 303 | $ | 960 | $ | 290,880 | |||||||
March 21 | 505 | $ | 1,010 | $ | 510,050 | |||||||
Sales: | ||||||||||||
March 18 | 909 | $ | 1,091 | $ | 991,719 | |||||||
March 29 | 606 | $ | 1,151 | $ | 697,506 | |||||||
Inventory at March 31: | 505 |
In addition to the above information, due to a downturn in the
economy that has hit Crane’s commercial customers especially hard,
Crane expects commercial pump prices from March 31 onward to be
considerably different (and lower) than at the beginning of and
during March. Crane has developed the following additional
information.
Commercial Pumps | Residential Pumps | |||
Net realizable value (per unit) | $909 | $586 |
The normal profit margin is 16.67% of cost. Crane uses the FIFO
accounting method.
Determine the dollar amount that Crane should report on its March 31 balance sheet for inventory. Assume Crane applies lower-of-cost-or-net realizable value at the individual product level.
Total amount of inventory | ? $ |
Determine the dollar amount that Crane should report on its
March 31 balance sheet for inventory. Assume Crane applies
lower-of-cost-or-market at the major category level. Crane places
both commercial and residential pumps into the same (and only)
category.
Total amount of inventory | ? $ |
Inventory as on March 31 is as under:
Since the company follows FIFO method of accounting stock. The closing balance will be arrived at considering the last purchases
Particulars No of units Cost/unit Net realizable value/unit Inventory value
Residential Pump - 202 480 586 96,960 (202x480)
303 505 586 153,015 (303x505)
Total Residential pump 505 586 249,975
Commercial Pumps - 505 1010 909 459,045 (505x909)
Total Inventory 1010 709,020
The value of inventory as on March 31 will be $ 436,320 based on FIFO and net realizable value basis.
Now for valuation of inventory on cost or market whichever is lower at the major product level will be
Particulars No of units Cost/unit Market value/unit Inventory value
Residential Pump - 202 480 576 96,960 (202x480)
303 505 576 153,015 (303x505)
Total Residential pump 505 576 249,975
Commercial Pumps - 505 1010 1151 510,050 (505x1010)
Total Inventory 1010 760,025
Hence total inventory as on March 31 will be $ 760,025 considering Cost or Market value which ever is lower.
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