Question

Multiple Choice Question 68

Cullumber Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 20% on selling price is considered normal for each product. Specific data with respect to each product follows:

	Product #1	Product #2
Historical cost	$8	$16
Replacement cost	9	15
Estimated cost to dispose	4	8
Estimated selling price	19	33

In pricing its ending inventory using the lower-of-cost-or-market, what unit values should Cullumber use for products #1 and #2, respectively?

$9 and $15.

$15 and $25.

$8 and $16.0.

$11 and $17.

On January 1, 2017, the merchandise inventory of Carla Vista, Inc. was $1350000. During 2017 Carla Vista purchased $2705000 of merchandise and recorded sales of $3500000. The gross profit rate on these sales was 20%. What is the merchandise inventory of Carla Vista at December 31, 2017?

$1255000.

$2800000.

$795000.

$700000.

Answer 1

1

Answer for Product 1 is $8 and for Product 2 is $16

Explanation:

Product 1:

Replacement cost =$9

NRV =$19-$4 =$15

NRV- Profit margin =$15-($19×20%)

=$15-$3.8

=$11.2

So, Lower of market or historical cost would considered market value=$11.2 and Historical value of $8. So the answer is $8.

Product 2

Replacement cost =$15

NRV=$33-$8 =$25

NRV- Profit margin =$25-($33×20%)

=$18.4

Lower of market or historical cost i.e $18.4 or $16

So the answer is ,$16

2. Here answer is $1,255,000

Beginning inventory	$1,350,000
Purchases	$2,705,000
Less: COGS (sales×{100-20%})	$2,800,000($3,500,000×80%)
Ending inventory	$1,255,000

______×______