Question

Determining Lower of Cost or Net Realizable Value (NRV)

The following data refer to Froning Company’s ending inventory.

Item Code	Quantity	Unit Cost	Unit NRV
LXC	500	$45	$48
KWT	180	38	34
MOR	300	22	20
NES	200	27	32

Determine the ending inventory amount by applying the lower of cost or net realizable value rule to:
(a) each item of inventory
$Answer

(b) the total inventory.
$Answer

Answer 1

SOLUTION

INVENTORY IS RECOGNISED LOWER OF COST OR NET REALISABLE VALUE

PART A

LXC

COST = 500 X 45 = 22500

NRV = 500 X 48= 24000

LOWER = 22500 (ANSWER)

KWT

COST = 180 X 38= 6840

NRV = 180 X 34 = 6120

LOWER = 6120 (ANSWER)

MOR

COST= 300 X 22= 6600

NRV= 300 X 20= 6000

LOWER = 6000 (ANSWER)

NES

COST = 200 X 27= 5400

NRV = 200 X 32= 6400

LOWER = 5400 (ANSWER)

PART B

LOWER OF TOTAL INVENTORY COST OR NRV

TOTAL COST OF ALL ITEM = 22500+6840+6600+5400 = 41340

TOTAL NRV OF ALL ITEM = 24000+6120+6000+6400 = 42520

LOWER = 41340( ANSWER)