Question

The next 2 questions use the same below information.

Auto Resales, Inc. started business on January 1, 20X1 (beginning inventory balance is zero). On January 1, 20X1 the company purchased all of the inventory for their used car sales lot. Purchase information is:

Total cost of the cars purchased	$1,500,000
Number of cars purchased	100

Types of cars, number of cars, and sales price per car are as follows:

	Number purchased	Sales price per car
Ford	20	$10,000
Lexus	40	$20,000
BMW	40	$25,000
Total number of lots	100

During the year, Auto Resales, Inc. sold the following cars:

Ford	8
Lexus	10
BMW	30
Total cars sold	48

Ending inventory in units

52

Using the relative sales value approach, what is the cost allocated to each Ford car?

Answer 1

Total cost of Cars purchased		15,00,000
Divide: Total sales revenue
Ford	(20*10000)	200000
Lexus	(40*20000)	800000
BMW	(40*25000)	1000000	20,00,000
% of cost to Relative sales value	75%
Cost allocated to Ford:
Total sales relative value of FORD	2,00,000
Divide: % of cost to Relative sales value	75%
Total cost allocated to FORD		150000
Divide: Units			20
Cost allocated per unit of Ford		7500
Answer is $ 7500.