Brief Exercise 9-4 Presented below is information related to Indigo Inc.’s inven
ID: 2606141 • Letter: B
Question
Brief Exercise 9-4
Presented below is information related to Indigo Inc.’s inventory, assuming Indigo 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 price301.04
205.90
104.73
Cost to distribute26.98
11.36
3.55
Current replacement cost288.26
149.10
72.42
Normal profit margin45.44
41.18
30.18
Explanation / Answer
a)ceiling for skis =Selling price -cost to distribute
= 301.04-26.98
= $ 274.06
Floor limit : ceiling -normal profit
= 274.06-45.44
= $ 228.62
b)cost to use for boots : $150.52
c)Market amount for parkas:
ceiling for parkas : 104.73-3.55=101.18
floor for parkas : 101.18-30.18=71
replacement cost:72.42
Designated market value is a middle of above value : 71 or 72.42or 101.18
= $ 72.42
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