Question

Forest Company has five products in its inventory. Information about the December 31, 2021, inventory follows....

Forest Company has five products in its inventory. Information about the December 31, 2021, inventory follows.

Product

Quantity

Unit Cost

Unit Replacement Cost

Unit Selling Price

A

1,000

$10

$12

$16

B

800

$15

$11

$18

C

600

$3

$2

$8

D

200

$7

$4

$6

E

600

$14

$12

$13

The cost to sell for each product consists of a 15 percent sales commission. The normal profit for each product is 40 percent of the selling price. The carrying value of inventory at December 31, 2021, assuming the lower of cost or market (LCM) rule is applied to individual products would be:

A)28,030

B)28,000

C)27,530

D)26,400

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Homework Answers

Answer #1

Product

Unit selling price

Sales commission

[ 15% * Unit selling price ]

Normal profit

Net realizable value (NRV)

[ Unit selling price - Sales commission ] (A)

NRV less normal profit (B)

Unit replacement cost (C)

Market value

[ Middle of A,B & C ]

Unit cost

Lower of cost or market

Quantity

Inventory value

[ Lower of cost or market * Quantity ]
A 16 2.4 6.4 13.6 7.2 12 12 10 10 1000 10000
B 18 2.7 7.2 15.3 8.1 11 11 15 11 800 8800
C 8 1.2 3.2 6.8 3.6 2 3.6 3 3 600 1800
D 6 0.9 2.4 5.1 2.7 4 4 7 4 200 800
E 13 1.95 5.2 11.05 5.85 12 11.05 14 11.05 600 6630
Total 28030
Answer 28030
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