Question

In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases, under the lower-of-cost-or-market rule.

		Cases
		1		2		3		4		5
Cost		$16.80		$13.80		$17.10		$17.50		$15.10
Net realizable value		14.80		20.90		16.00		8.90		18.70
Net realizable value less normal profit		13.30		19.30		14.75		7.10		17.00
Market (replacement cost)		16.00		19.00		11.40		9.80		15.80

Answer 1

case 1

cost = $16.80

replacement cost>net realizable value, we can use net realizable value

cost-replacement cost=16.80-14.80=2.00

case 2

cost=$13.80

replacement cost<net realizable value less normal profit so use net realizable value less normal profit

13.80-19.30=5.50

case 3

cost=$17.10

replacement cost < net realizable value less normal profit so use net realizable value less normal profit

17.10-14.75=2.35

case 4  

cost = 17.50

replacement cost>net fealizable value so realizable value is used

17.50-8.90=8.60

case 5

cost =15.10

replacement cost <net realizable vlue less normal profit so net realizable value is used

15.10-17.00=1.90