Question

Lexington Company sells product 1976NLC for $20 per unit. The cost of one unit of 1976NLC...

Lexington Company sells product 1976NLC for $20 per unit. The cost of one unit of 1976NLC is $18, and the replacement cost is $17. The estimated cost to dispose of a unit is $4, and the normal profit is 40%. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market?

IF uses LIFO

a. $15. b. $16. c. $8. d. $18.

IF uses FiFO

a. $8. b. $15. c. $16. d. $18.

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Homework Answers

Answer #1

The answer is B. $16

Market = Current Replacement Cost

Upper Limit of Market = Net Realisable value = Estimated Selling Price - Cost of Completion and Disposal

Net Realisable value = 20-4 = $16

Upper Limit of Market = Net Realisable value = $16

Market = Current Replacement cost = $17

Lower Limit of Market = Net realisalbe value - normal profit margin

Lower limit of Market = 16 - (40% of 20) =16-8 = 8

If the Current replacement cost is greater than the ceiling ,the ceiling amount is the market amount.

The product should be reported at $16

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