Question

Presented below is information related to Monty Inc.’s inventory, assuming Monty uses lower-of-LIFO cost-or-market.

(per unit)		Skis		Boots		Parkas
Historical cost		$197.60		$110.24		$55.12
Selling price		220.48		150.80		76.70
Cost to distribute		19.76		8.32		2.60
Current replacement cost		211.12		109.20		53.04
Normal profit margin		33.28		30.16		22.10

Determine the following:

(a) The two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis.

Ceiling Limit		$
Floor Limit		$

(b) The cost amount that should be used in the lower-of-cost-or-market comparison of boots.

The cost amount

$

(c) The market amount that should be used to value parkas on the basis of the lower-of-cost-or-market.

The market amount

$

Answer 1

(a) The two limits to market value that should be used incomputation for skis Net realizable value (NRV)of the inventory item, used as the ceiling for the market price. Selling Price Cost to distribute Ceiling Limit NRV Skis Boots $ 220.48 a $ $ 19.76 $ $ 200.72 CS Parkas 150.80 $ 76.70 8.32 $ 2.60 142.48 BS 74.100 . Net realizable value less the normal profit margin for inventory, used as the floor for the market price. NRV (as above Normal profit margin Floor Limit $ 200.72 d $ 33.28 $ 167.44 F $ S 142.48 30.16 112.32 $ 74.10 $ 22.10 | $ 52.00 Determining the market value of the inventory. 1. If Replacement Cost (RC) > NRV, market value - NRV (ceiling) 2. If Replacement Cost < (NRV minus normal profit margin, called market floor), use market floor). Floor limt b) Cost Amount that should be used forBoots is Replacement Cost $ 109.20 Ceiling Limit= NRV $ 142.48 B Floor Limit $ 112 32 h As the RC is less than Floor Limit $ 112.32 Market value of Boot is Historical cost $ 110.24 Current replacement cost $ 109.20 Cost amount of boot to be considered: Lower of kl and m $ 109.20 Is Market Amount of Parkas is Replacement Cost Ceiling Limit = NRV Floor Limit As the RC is more than Floor Limit Market value of Boot is $ 53.04 $ 74.10 li $ 52.00 li $ 53.04 Replacement Cost