Question

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.)

      
     

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