Question

SLR Corporation has 2,400 units of each of its two products in its year-end inventory. Per unit data for each of the products are as follows:

	Product 1				Product 2
Cost		$	78			$	48
Selling price			140				50
Costs to sell			10				4

Determine the carrying value of SLR’s inventory assuming that the lower of cost or net realizable value (LCNRV) rule is applied to individual products. What is the before-tax income effect of the LCNRV adjustment?

Answer 1

Ans:

	Product 1	Product 2	Total
Cost per unit $	78	48
Selling price $	140	50
Less: Costs to sell	10	4
NRV $	130	46
LCNRV $	78	46
Units	2,400	2,400
Carrying value of inventory $	187,200	110,400	297,600

Before-tax income effect of the LCNRV adjustment = $-4,800

Working:

	Product 1	Product 2	Total
Units	2,400	2,400
Cost per unit $	78	48
Total cost $	187,200	115,200	302,400
LCNRV $	187,200	110,400	297,600
Difference $			-4,800