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 Per Unit Product Cost Replacement Cost Selling Price $35 70 A 40 80 40 100 20 $ 60 100 80 130 30 7e 28 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 30% 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 Replacement cost Product Cost NRV NRV - NF Market Inventory Value

Explanation / Answer

NRV= Selling price - Selling costs

NRV - NP = NRV - 30% of selling price   

Market = Middle of Replacement cost, NRV, NRV-NP

Per unit Inventory value = Lower of cost or market

Product Cost Replacement cost NRV NRV-NP Market Per unit Inventory value A 40 35 52 [60-(60*10%)-(40*5%)] 34 [52-(60*30%)] 35 35 B 80 70 86 [100-(100*10%)-(80*5%)] 56 [86-(100*30%)] 70 70 C 40 55 70 [80-(80*10%)-(40*5%)] 46 [70-(80*30%)] 55 40 D 100 70 112 [130-(130*10%)-(100*5%)] 73 [112-(130*30%] 73 73 E 20 28 26 [30-(30*10%)-(20*5%)] 17 [26-(30*30%)] 26 20

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