Question

Valuing Inventory at Lower-of-Cost-or-Market

Gard Inc. has compiled the following information related to its five products. Costs of disposal are estimated to be 10% of selling price, and gross profit is estimated to be 25% of the selling price. Determine the value of inventory applying the lower-of-cost-or-market rule to each individual inventory item.

Note: Round each amount to the nearest dollar.

	#1	#2	#3	#4	#5
Estimated selling price	$66	$76	$82	$100	$130
Original cost (LIFO)	45	48	60	63	90
Replacement cost	50	70	49	66	83
Inventory at the lower-of-cost-or-market	Answer	Answer	Answer	Answer	Answer

Answer 1

	Replacement cost (A)	Net realizable value (NRV) (B)	NPV - Gross profit (C)	Market value [ Middle of A,B,C ]	Original cost	Lower of cost or market
#1	50	59	42	50	45	45
#2	70	68	49	68	48	48
#3	49	74	53	53	60	53
#4	66	90	65	66	63	63
#5	83	117	84	84	90	84

Working note :
	Estimated selling price	Cost of disposal [ 10% of selling price ]	Gross profit [ 25% of selling price ]	NRV [ Estimated selling price - Cost of disposal ]	NPV - Gross profit
#1	66	7	17	59	42
#2	76	8	19	68	49
#3	82	8	21	74	53
#4	100	10	25	90	65
#5	130	13	33	117	84