Question

The inventory of Royal Decking consisted of five products. Information about the December 31, 2018, inventory...

The inventory of Royal Decking consisted of five products. Information about the December 31, 2018, inventory is as follows:

Per Unit
Product Cost Replacement Cost Selling Price
A $ 56 $ 51 $ 76
B 96 86 116
C 56 71 96
D 116 86 146
E 36 44 46


Selling costs consist of a sales commission equal to 10% of selling price and shipping costs equal to 5% of cost. The normal gross profit percentage is 35% of selling price.

Required:
What unit value should Royal Decking use for each of its products when applying the lower of cost or market (LCM) rule to units of ending inventory? (Do not round intermediate calculations. Round final answers to 2 decimal places.)

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Homework Answers

Answer #1

Valuation of Units :-

Product Cost Replacement cost NRV NRV-NP Market Per Unit Inventory Value
A $56 $51 $65.6 $39 $51 $51
B $96 $86 $99.6 $59 $86 $86
C $56 $71 $83.6 $50 $71 $56
D $116 $86 $125.6 $74.5 $86 $86
E $36 $44 $39.6 $23.5 $39.6 $36

Notes :-

=> Market Value = middle number among the replacement cost, NRV and NRV-NP.

=> Per Unit Inventory Value = Lower of Cost and Market Value.

Calculation of Net Realisable Value(NRV) - Net Profit(NP)

Product Selling Price (a) Sales Comm. (b)=(a*10%) Cost Price (c) Shipping Cost (d)=(c*5%) NRV (e)=(a-b-d) NP (f)=(a*35%) NRV-NP (e-f)
A $76 $7.6 $56 $2.8 $65.6 $26.6 $39
B $116 $11.6 $96 $4.8 $99.6 $40.6 $59
C $96 $9.6 $56 $2.8 $83.6 $33.6 $50
D $146 $14.6 $116 $5.8 $125.6 $51.1 $74.5
E $46 $4.6 $36 $1.8 $39.6 $16.1 $23.5
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