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 70 70 $ 40 80 4 0 100 20 $ 60 100 80 130 $ 35 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 - NP Market Inventory Value

Explanation / Answer

The gross profit is 30% on sales hence the cost per unit sold = Sale value per unit Minus Gross Profit per unit

A=$60-30% of $60 = $60-$18=$42
B=$100-30% of $100 = $100-$30=$70
C=$80-30% of $80 = $80-$24=$56
D=$130-30% of $130 = $130-$39=$91
E=$30-30% of $30 = $30-$9=$21

Inventory value taken on the basis of cost or NRV whichever is lower

Product COST NRV Inventory value to be considered A 40 42 40 B 80 70 70 C 40 56 40 D 100 91 91 E 20 21 21

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