Question

The December 31, 2020 inventory of Sandhill Company consisted of four products, for which certain information is provided below.

Product		Original Cost			Replacement Cost			Estimated Disposal Cost			Expected Selling Price			Normal Profit on Sales
A		$30.00			$28.00			$5.00			$50.00			30.00%
B		$45.00			$43.00			$9.00			$49.00			25.00%
C		$148.00			$143.00			$28.00			$190.00			20.00%
D		$17.00			$14.50			$6.00			$28.00			20.00%

Using the lower-of-cost-or-market approach applied on an individual-item basis, compute the inventory valuation that should be reported for each product on December 31, 2020. (Round answers to 2 decimal places, e.g. 52.75.)

Product
A		$
B		$
C		$
D		$

Answer 1

(1)	(2)	(3)	(4)	(5)	(6)	(7)
Product	Ceiling for LCM	Floor for LCM	Replacement cost	Market value	Original Cost	Inventory valuation
A	$45	$30	$28	$30	$30	$30
B	$40	$27.75	$43	$27.75	$45	$27.75
C	$162	$124	$143	$124	$148	$124
D	$22	$16.4	$14.50	$16.4	$17	$16.4

LCM = lower of cost or market

Ceiling for LCM = Expected Selling Price less Estimated Disposal Cost

Floor for LCM = Ceiling for LCM - Normal Profit

Market Value = middle of [(2), (3), (4)]

Inventory valuation = lower of (5) and (6)

Product	Expected Selling Price	Estimated Disposal Cost	Ceiling for LCM	Normal Profit	Floor for LCM
A	$50	$5	$45	50*30% = $15	$30
B	$49	$9	$40	49*25% = $12.25	$27.75
C	$190	$28	$162	190*20% = $38	$124
D	$28	$6	$22	28*20% = $5.60	$16.4