The inventory of Royal Decking consisted of five products. Information about the
ID: 2438240 • Letter: T
Question
The inventory of Royal Decking consisted of five products. Information about the December 31, 2018, inventory is as follows Per Unit Selling Price $ 76 116 96 146 Product Cost Replacement Cost S 56 96 $ 51 71 116 36 Selling costs consist of a sales commission equal to 10% of selling price and shipping costs equal to 5% of cost. The normal gross profit percentage is 35% of selling price Required What unit value should Royal Decking use for each of its products when applying the lower of cost or market (LCM) rule to units of ending inventory? (Do not round intermediate calculations. Round final answers to 2 decimal places.) Per Unit Replacement cost Product Cost NRV NRV - NP MarketInventory ValueExplanation / Answer
Product
Cost
Replacement Cost
NRV
NRV - NP
Market
Per Unit Inventory Value
A
$ 56
$ 51
$ 65.60
$ 39.00
$ 51.00
$ 51
B
$ 96
$ 86
$ 99.60
$ 59.00
$ 59.00
$ 59
C
$ 56
$ 71
$ 83.60
$ 50.00
$ 71.00
$ 56
D
$ 116
$ 86
$ 125.60
$ 74.50
$ 86.00
$ 86
E
$ 36
$ 44
$ 39.60
$ 23.50
$ 39.60
$ 36
Explanation:
Computation of NRV:
NRV = Selling price – selling cost
= Selling price – (Selling price x 10 % + selling cost x 5 %)
Product
Selling price (a)
10 % of Selling Price (b)
5 % of cost
(c )
d= b + c
NRV
(e = a-d)
A
$76
$7.6
$2.8
$10.4
$65.6
B
116
11.6
4.8
16.4
99.6
C
96
9.6
2.8
12.4
83.6
D
146
14.6
5.8
20.4
125.6
E
46
4.6
1.8
6.4
39.6
Computation of NRV - NV:
*NRV – NP = NRV – 35 % of selling price
Product
NRV
Selling Price
35% of Selling Price
*NRV - NP
A
$65.6
$76
$26.60
$39.00
B
99.6
116
40.60
59.00
C
83.6
96
33.60
50.00
D
125.6
146
51.10
74.50
E
39.6
46
16.10
23.50
Market = Middle of Replacement cost, NRV and NRV- NP
Per unit Inventory value = Lower of cost or market
Product
Cost
Replacement Cost
NRV
NRV - NP
Market
Per Unit Inventory Value
A
$ 56
$ 51
$ 65.60
$ 39.00
$ 51.00
$ 51
B
$ 96
$ 86
$ 99.60
$ 59.00
$ 59.00
$ 59
C
$ 56
$ 71
$ 83.60
$ 50.00
$ 71.00
$ 56
D
$ 116
$ 86
$ 125.60
$ 74.50
$ 86.00
$ 86
E
$ 36
$ 44
$ 39.60
$ 23.50
$ 39.60
$ 36
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