In applying the LCM rule, the inventory of rehab supplies for Cooper Medical Sup

Question

In applying the LCM rule, the inventory of rehab supplies for Cooper Medical Supply would be valued at:

My teach says the answer is $155 and I do not understand how

Data related to the inventories of Copper Medical Supply is presented below: Surgical Equipment Surgical Supplies Rehab Equipment Rehab Supplies Selling Price 260 120 340 165 Cost 170 90 250 162 Replacement 240 80 235 158 Disposal Cost 30 5 25 10 Normal gross profit ratio 30% 30% 30% 20%

In applying the LCM rule, the inventory of rehab supplies for Cooper Medical Supply would be valued at:

My teach says the answer is $155 and I do not understand how

Explanation / Answer

Market is the middle of the following three numbers :

Ceiling = Net Realizable Value (Net selling price - Cost to complete and dispose)

Floor = Net Realizable Value - Normal profit margin

Replacement cost

For Rehab Suppliers

Ceiling = 165 - 10 = 155

Floor = 155 - (165*20%) = 155 - 33 = 122

Replacement cost = 158

Market (middle of three) = 155

Cost = 162

Lower of cost or Market = 155

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