The inventory of Royal Decking consisted of five products. Information about the

Question

The inventory of Royal Decking consisted of five products. Information about the December 31, 2018, inventory is as follows:

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 20% 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?

Per Unit Product Cost Replacement Cost Selling Price A $ 49 $ 44 $ 69 B 89 79 109 C 49 64 89 D 109 79 139 E 29 37 39

Explanation / Answer

Market = Middle of Celing, Floor, Replacement cost

Product Ceiling (NRV) Floor (NRV-normal profit margin) Replacement cost Cost Market Lower of cost or market (LCM) A 59.65 (69-6.9-2.45) 45.85 (59.65-13.8) 44 49 45.85 45.85 B 93.65 (109-10.9-4.45) 71.85 (93.65-21.8) 79 89 79 79 C 77.65 (89-8.9-2.45) 59.85 (77.65-17.8) 64 89 64 89 D 119.65 (139-13.9-5.45) 91.85 (119.65-27.8) 79 109 91.85 91.85 E 33.65 (39-3.9-1.45) 25.85 (33.65-7.8) 37 29 33.65 29

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