Question

Please show all supporting computations. Points will be deducted if you do not show your work. The December 31 inventory of Glenmora, Inc. consisted of five products for which certain information is provided below: Replacement Estimated Expected Normal Profit Product Original Cost Cost Cost to Sell Selling Price as a % of Selling Price $24.00 $22.00 $6.50 $40.00 20% $42.00 $40.00 $10.00 $48.00 25% $120.00 $115.00 $25.00 $190.00 30% $19.00 $15.80 $4.00 $26.00 10% $65.00 $68.00 $9.00 $82.00 15% D Using the lower-of-cost-or-market approach, applied on an individual item basis, compute the inventory value that should be used for each product on December 31. Clearly label the value you chose for each product.

Answer 1

In lower-of-cost-or-market approach, Inventory is valued at original cost or Net Realizable Price whichever is less.

Net Realizable Price = Expected Selling Price -- Estimated cost to sell

For example, for Product A:

Net Realizable Price = $40- $6.5

Net Realizable Price of Product A =$33.50

Inventory valuation will be as shown below:

Product	Original Cost	Expected Selling Price	Estimated cost to sell	Net Realizable Price	Inventory value as on December 31	Label
A	$                         24.00	$                         40.00	$                           6.50	$                          33.50	$                         24.00	Original Cost
B	$                         42.00	$                         48.00	$                         10.00	$                          38.00	$                         38.00	Net Realizable Value
C	$                      120.00	$                      190.00	$                         25.00	$                        165.00	$                      120.00	Original Cost
D	$                         19.00	$                         26.00	$                           4.00	$                          22.00	$                         19.00	Original Cost
E	$                         65.00	$                         82.00	$                           9.00	$                          73.00	$                         65.00	Original Cost
Total	$                      270.00	$                      386.00	$                         54.50	$                        331.50	$                      266.00

Inventory to be valued at $ 266 on December 31 for all the products. Inventory valuation for each product is already mentioned & calculated in the table above.