Question

Part A Adria Lopez of Success Systems is evaluating her inventory to determine whether it must...

Part A

Adria Lopez of Success Systems is evaluating her inventory to determine whether it must be adjusted based on lower of cost or market rules. Her company has three different types of software in its inventory and the following information is available for each.

Per Unit
  Inventory Items Units Cost Market
  Office productivity 3     $ 76       $ 74    
  Desktop publishing 2     103       100    
  Accounting 3     90       96    
Required:
1(a).

Compute the lower of cost or market for ending inventory assuming Lopez applies the lower of cost or market rule to inventory as a whole.

         

1(b).

Must Lopez adjust the reported inventory value?

No
Yes
2(a).

Compute the lower of cost or market rule to each product in inventory.

        

2(b).

Must Lopez adjust the reported inventory value?

No
Yes
Part B

Selected accounts and balances for the three months ended March 31, 2014, for Success Systems follow.

  January 1 beginning inventory $ 0
  Cost of goods sold 14,052
  March 31 ending inventory 704  
Required:
1.

Compute inventory turnover and days’ sales in inventory for the three months ended March 31, 2014. (Use 365 days a year. Do not round intermediate calculations. Round your days' sales answer to 1 decimal place and turnover answer to the nearest whole number.)

      
     

Homework Answers

Answer #1
Part-A Per unit Total
Inventory items Units Cost Market Cost Market
Office productivity 3 76 74 228 222
Desktop publishing 2 103 100 206 200
Accounting 3 90 96 270 288
Total 704 710
1a
Lower of cost or market for ending inventory $704
b
No, as ending inventory is same as cost
Per unit Total
Inventory items Units Cost Market Cost Market Lower of cost or market
Office productivity 3 76 74 228 222 222
Desktop publishing 2 103 100 206 200 200
Accounting 3 90 96 270 288 270
Total 704 710 692
2a
Lower of cost or market rule inventory value $692
b
Yes
Part-B
Inventory turnover = 14052/((704+0)/2)= 40 times
Days’ sales in inventory = 365/39.92= 9.1 days
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