Presented below is information related to Vaughn Inc.’s inventory, assuming Vaug

Question

Presented below is information related to Vaughn Inc.’s inventory, assuming Vaughn uses lower-of-LIFO cost-or-market.

(per unit)

Skis

Boots

Parkas

$269.80

$150.52

$75.26

301.04

205.90

104.73

26.98

11.36

3.55

288.26

149.10

72.42

45.44

41.18

30.18

Determine the following:

(a) The two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis.

(b) The cost amount that should be used in the lower-of-cost-or-market comparison of boots.

(c) The market amount that should be used to value parkas on the basis of the lower-of-cost-or-market.

(per unit)

Skis

Boots

Parkas

Historical cost

$269.80

$150.52

$75.26

Selling price

301.04

205.90

104.73

Cost to distribute

26.98

11.36

3.55

Current replacement cost

288.26

149.10

72.42

Normal profit margin

45.44

41.18

30.18

Explanation / Answer

(a) The two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis:-

Cellining limit (NRV) = Selling price - Cost to distribute

Floor limit = NRV - Normal profit

(b) The cost amount that should be used in the lower-of-cost-or-market comparison of boots:-

(c) The market amount that should be used to value parkas on the basis of the lower-of-cost-or-market:-

Please Rate or comment if you have any doubt regarding this solution.

Amount Calculation Ceiling Limit 274.06 301.04 - 26.98 Floor Limit 228.62 274.06 - 45.44

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