Question

The inventory of Royal Decking consisted of five products. Information about the December 31, 2021, inventory is as follows: Product Cost $ 54 Per Unit Replacement Cost $ 49 94 Selling Price $ 74 114 94 144 44 69 Uw 54 114 34 84 Selling costs consist of a sales commission equal to 15% of selling price and shipping costs equal to 5% of cost. The normal profit 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.) Product Cost Replacement cost NRV NRV - NP Market Per Unit Inventory Value $ 54.00 84 A $ 541 $ 49 194 5469 114 847 E 347 421

Answer 1

Lower of cost or market(LCM) rule to units of ending inventory

PRODUCT	COST	REPLACEMENT COST	NRV	NRV-NP	MARKET	PER UNIT INVENTORY VALUE
A	54	49	65.6 {74-(74×15%)-(54×5%)}	39.7 {65.6-(75×35%)}	49	49
B	94	84	101.6 {114-(114×15%)-(94×5%)}	61.7 {101.6-(114×35%)}	84	84
C	54	69	82.6 {94-(94×15%)-(54×5%)}	49.7 {82.6-(94×35%)}	69	54
D	114	84	128.1 {144-(144×15%)-(114×5%)}	88.2 {128.1-(114×35%)}	88.2	88.2
E	34	42	39.1 {44-(44×15%)-(34×5%)}	23.7 {39.1-(44×35%)}	39.1	34

NRV = selling price- selling cost

NRV- NP = NRV - 35%of selling price

Market = middle of replacement cost ,NRV,NRV-NP

Per unit inventory value = lower of cost or market.

Conventional retail method

	Cost	Retail
Beginning inventory	14,000	22,000
Plus: purchases	104,600	167,000
Freight in	8,600
Less: purchase returns	(5,000)	(8,000)
Plus: net markups		7,000
Cost to retail percentage 122,000÷188,000= 65%
Less: net markdowns		(4,000)
Goods available for sale	122,000	184,000
Less: Normal spoilage		(4,400)
Net sales		(154,000)
Estimated ending inventory at retail		25,600
Estimated Ending inventory at cost (25,600×65%)	(16,640)
Estimated cost of goods sold	105,560

____×____

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