Question

Ross Electronics has one product in its ending inventory. Per unit data consist of the following:...

Ross Electronics has one product in its ending inventory. Per unit data consist of the following: cost, $20; replacement cost, $18; selling price, $30; selling costs, $4. The normal profit is 30% of selling price.

What unit value should Ross use when applying the lower of cost or market (LCM) rule to ending inventory?

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Homework Answers

Answer #1

Solution:Unit Value of ending inventory = $ 18

Calculation of lower of cost or market

Product

Replacement Cost

Net Realizable Value [Note]

NRV-Profit [Note]

Market Value

[Note]

Original Cost

Lower of Cost or Market

1

$              18.00

$               26.00

$            17.00

$    18.00

$    20.00

$    18.00

Note:

· NRV = Selling price-Selling costs = 30-4 = $26

· NRV - NP = 26 - (30*30%) = $17

· To calculate market value an easy method is used in this question. We will take the middle value of the given below values to ascertain market value.

Replacement value

NRV

NRV minus Normal Profits
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