At Line Drive Apparel, practice jerseys are sold for $30. The disposal costs are $5 per...
At Line Drive Apparel, practice jerseys are sold for $30. The
disposal costs are $5 per jersey. The historical cost is $22 per
jersey but the current replacement cost is $20 per jersey. What
cost amount should the company use in the
lower-of-cost-or-net-realizable-value (NRV) comparison if Line
Drive Apparel's normal profit margin is 20% of the sale
price?
A. $20
B. $22
C. $19
D. $25
Homework Answers
| Net-realizable-value (NRV) = 30-5 = $25 |
| NRV less normal profit = 25-(30*20%) = $19 |
| Market = Higher of replacement cost or NRV less normal profit |
| Market = Higher of $20 or $19 = $20 |
| Inventory value = Lower of Cost or Market |
| Inventory value = Lower of $22 or $20 = $20 |
| Option A $20 is correct |
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Unit Cost
Replacement
Cost/Unit
Estimated Selling
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Completion & Disposal
Cost/Unit
Normal Profit
Margin/Unit
A
1,300
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11.00
1.05
1.40
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1,200
6.55
6.32
8.42
1.35
0.70
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Completion & Disposal
Cost/Unit
Normal Profit
Margin/Unit
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8.94
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10.25
0.98
1.31
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6.10
5.89
7.85
1.25
0.65
D
1,700
4.14
4.58
6.87
0.87
1.64
E
2,100
6.98
6.87
7.30
0.76
1.09...
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Floor Limit
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Item
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Unit Cost
Replacement
Cost/Unit
Estimated Selling
Price/Unit
Completion & Disposal
Cost/Unit
Normal Profit
Margin/Unit
A
1,300
$8.78
$9.83
$12.29
$1.76
$2.11
B
1,000
9.59
9.24
11.00
1.05
1.40
C
1,200
6.55
6.32
8.42
1.35
0.70
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1,200
4.45
4.91
7.37
0.94
1.76
E
1,600
7.49
7.37
7.84
0.82
1.17...
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Item
Quantity
Unit Cost
Replacement
Cost/Unit
Estimated Selling
Price/Unit
Completion & Disposal
Cost/Unit
Normal Profit
Margin/Unit
A
1,800
$8.18
$9.16
$11.45
$1.64
$1.96
B
1,500
8.94
8.61
10.25
0.98
1.31
C
1,700
6.10
5.89
7.85
1.25
0.65
D
1,700
4.14
4.58
6.87
0.87
1.64
E
2,100
6.98
6.87
7.30
0.76
1.09...
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inventory, assuming Coronado uses lower-of-LIFO
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Boots
Parkas
Historical cost
$254.60
$142.04
$71.02
Selling price
284.08
194.30
98.83
Cost to distribute
25.46
10.72
3.35
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272.02
140.70
68.34
Normal profit margin
42.88
38.86
28.48
Determine the following:
(a) The two limits to market value (i.e., the
ceiling and the floor) that should be used in the
lower-of-cost-or-market computation for skis.
Ceiling Limit
$
Floor Limit
$
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Boots
Parkas
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150.80
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Cost to distribute
19.76
8.32
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Current replacement cost
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109.20
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30.16
22.10
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