Question

5. Nugent Company manufactures custom phon company manufactures custom phone covers Most of the company's phone covers are sold on the basis of catalog prices. At December 31, 2018, the following phone covers appear in the company's inventory. Phone Cover Models Pretentious 2018 catalog selling price Decadent Pockums Bunny LIFO cost per inventory list $800 $780 $460 $250 Estimated current cost to manufacture 750 750 500 250 Sales commissions and estimated other 710 680 260 costs of disposal 2018 catalog selling price 50 30 20 860 800 600 260 400 The 2018 catalog was in effect through August 2018, and the 2018 catalog is effective as September 1, 2018. All catalog prices are net of the usual discounts. Generally, the company attempts to obtain a 25% gross profit on selling price and has usually been successful doing so. Instructions a. At what amount should each of the four phone covers models appear in the company's December 31, 2018, inventory, assuming that the company has adopted a LIFO, lower- of-cost-or-market approach for valuation of inventories on an individual-item basis? 6. Assume the same facts in Problem 5 above but that the company uses FIFO and needs to compute ending inventory using Lower of Cost of Net Realizable Value. Show your computations of ending inventory at LCNRV.

Answer 1

1) As per prevalent accounting standards, net realizable value means selling price (less) cost to complete the sales:

Particulars	Pretentious	Decadent	Pookums	Bunny
Selling Price applicable from sept. (a)	860	800	600	260
(less) Sales commission and other selling costs (b)	50	50	30	20
Net Realizable Value (c=a-b)	810	750	570	240
LIFO costs (d)	750	750	500	250
Inventory valuation per unit (e = lower of c or d)	750	750	500	240

2) If the company uses FIFO method, FIFO cost of inventory would be determined as current cost to manufacture:

Particulars	Pretentious	Decadent	Pookums	Bunny
Selling Price applicable from sept. (a)	860	800	600	260
(less) Sales commission and other selling costs (b)	50	50	30	20
Net Realizable Value (c=a-b)	810	750	570	240
FIFO costs (d)	710	680	400	260
Inventory valuation per unit (e = lower of c or d)	710	680	400	240