Question

1. Apogee Group purchases for resale 2,000 calculators for $16 each. At year end, the replacement cost is $15 each, the estimated selling price, $21, the disposal cost, $2, and the estimated markup, $4. If Apogee uses LCM costing, on a per-unit basis, what is the ceiling? a. $21 b. $19 c. $17 d. $15

2. Apogee Group purchases for resale 2,000 calculators for $16 each. At year end, the replacement cost is $15 each, the estimated selling price, $21, the disposal cost, $2, and the estimated markup, $4. If Apogee uses LCM costing, on a per-unit basis, what is the floor? a. $21 b. $19 c. $17 d. $15

3. Apogee Group purchases for resale 2,000 calculators for $16 each. At year end, the replacement cost is $15 each, the estimated selling price, $21, the disposal cost, $2, and the estimated markup, $4. If Apogee uses LCM costing, on a per-unit basis, what is the market? a. $21 b. $19 c. $17 d. $15

4. Apogee Group purchases for resale 2,000 calculators for $16 each. At year end, the replacement cost is $15 each, the estimated selling price, $21, the disposal cost, $2, and the estimated markup, $4. If Apogee uses LCM costing, on a per-unit basis, what is the lower of cost or market? a. $21 b. $19 c. $17 d. $15

5. Your company has not yet decided how it will apply LCM to its inventory. If management wants to minimize the value of ending inventory, it should: a. apply LCM by item. b. apply LCM by group, or "by class." c. apply LCM to total inventory. d. any one of the above because LCM does not affect the value of inventory.

Answer 1

1)Correct option is "b"-19

Ceiling also called upper limit =Selling price- estimated cost to sell

                 = 21-2

                  =19

2)Correct option is "d"-15

Floor also called lower limit = Net realizable value - normal profit margin

Net realizabe value= Selling price- estimated cost to sell

                     = 21 -2

                     = 19

Floor = 19 -4

      = 15

3)correct option is "d"-15

Market value is equals to ceiling (or NRV) if replacement cost is >NRV .In the given question ,Replacement cost (of 15 )is less than < NRV of (21-2 =19) .

Market value is equals to Floor (or NRV-profit margin) ,if replacement cost is < NRV less profit margin .In the given question ,Replacement cost (of $15) is not less than NRV less profit margin (19-2-4=15 ) [it is equal]

Market value is equals to replacement cost if above two conditions are not met.)

In the given question market value = replacement cost= 15

4)correct option is "d"-15

Lower of cost or market =Lower of 16 or 15 (As computed above) which is equals to 15

5)correct option is "A"

In case LCM is applied by item ,lower of each item will be taken in to account and thus it will minimize the total inventory cost