Oslo Corporation has two products in its ending inventory, each accounted for at

Question

Oslo Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. Aprofit margin of 30% on selling price is considred normal for each product. Specific data with respect to each product follows:

                                                     Product 1              Product 2

Historical cost                              20.00                       35.00

Replacement cost                       22.50                        27.00

Estimated cost to dispose             5.00                         13.00

Estimated selling price                  40.00                        65.00

In pricing its ending inventory using the lower of cost or market, waht units values should Oslo use for products #1 and # respectively?

Answer:  20.00 and 32.50

Please explain answer in detail

Explanation / Answer

Hi,

Please find the answer as follows:

Product 1:

Replacement Cost = 22.50

Net Realizable Value = 40 - 5 = 35

Net Realizable Value - Profit Margin = 35 - (.30*40) = 23

So lower of 23 (Market) or 20 (Historical Cost) will be selected which would be 20 for Product 1.

Product 2:

Replacement Cost = 27

Net Realizable Value = 65 - 13 = 52

Net Realizable Value - Profit Margin = 52 - (.30*65) = 32.5

So lower of 32.5 (Market) or 35 (Historical Cost) will be selected which would be 32.5 for Product 2.

Thanks.

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.