Adria Lopez of Success Systems is evaluating her inventory to determine whether

Question

Adria Lopez of Success Systems is evaluating her inventory to determine whether it must be adjusted based on lower of cost or market rules. Her company has three different types of software in its inventory and the following information is available for each.

Compute the lower of cost or market for ending inventory assuming Lopez applies the lower of cost or market rule to inventory as a whole.

Must Lopez adjust the reported inventory value?

Compute the lower of cost or market rule to each product in inventory.

Must Lopez adjust the reported inventory value?

Selected accounts and balances for the three months ended March 31, 2014, for Success Systems follow.

Compute inventory turnover and days’ sales in inventory for the three months ended March 31, 2014. (Use 365 days a year. Do not round intermediate calculations. Round your days' sales answer to 1 decimal place and turnover answer to the nearest whole number.)

Explanation / Answer

Part-A Per unit Total Inventory items Units Cost Market Cost Market Office productivity 3 76 74 228 222 Desktop publishing 2 103 100 206 200 Accounting 3 90 96 270 288 Total 704 710 1a Lower of cost or market for ending inventory $704 b No, as ending inventory is same as cost Per unit Total Inventory items Units Cost Market Cost Market Lower of cost or market Office productivity 3 76 74 228 222 222 Desktop publishing 2 103 100 206 200 200 Accounting 3 90 96 270 288 270 Total 704 710 692 2a Lower of cost or market rule inventory value $692 b Yes Part-B Inventory turnover = 14052/((704+0)/2)= 40 times Days’ sales in inventory = 365/39.92= 9.1 days

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