Question

HCH Corporation sells copying machines and replacement toners. HCH Corporation sells two models - Model A and Model B. HCH Corporation provided the following information regarding inventory at the end of the current year. Cost of Completion and Disposal Normal Profit Cost S35 170 Item Number of Replacement Selling Units Cost Price Price Model A Copying Machine 2,000 $155 S210 Replacement Toner 1.500 401 55 Model B Copying Machine 3.400 2 15 235 Replacement Toner 2.750 6 5 145 5 1 20 0 251 15 2011 25 55 Instructions: A. Calculate the ceiling and floor for each model for the lower of cost or market rule. Item Ceiling Floor Model A Copying Machine Replacement Toner Model B Copying Machine Replacement Toner B. HCH Corporation is pricing its ending inventory using the lower of cost or market but want to know the difference with the standard of lower of cost or net realizable value. Fill the following table with the unit values that HCH Corporation should use for each model under each rule. Item Inventory at lower of cost or market Inventory at lower of cost or not realizable value Model A Copying Machine Replacement Toner Model B Copying Machine Replacement Toner

PLEASE, INCLUDE ALL THE MATHEMATICAL PROCEDURE. THANKS!

Answer 1

A

ITEM	CEILING	FLOOR
MODEL A
Copying Machine	190	155
Replacement Toner	45	29
MODEL B
Copying Machine	215	195
Replacement Toner	130	105

WORKING NOTES

CEILING

	MODEL A	MODEL A	MODEL B	MODEL B
	Copying Machine	Replacement Toner	Copying Machine	Replacement Toner
Selling Price	210	55	235	145
Less: Cost of completion and disposal	20	10	25	15
Ceiling (NRV)	190	45	215	130

FLOOR

	MODEL A	MODEL A	MODEL B	MODEL B
	Copying Machine	Replacement Toner	Copying Machine	Replacement Toner
NRV	190	45	215	130
Less: Normal profit	35	16	20	25
Floor	155	29	195	105

B

ITEM	Inventory at lower of cost or market	Inventory at lower of cost or NRV
MODEL A
Copying Machine	155	170
Replacement Toner	40	45
MODEL B
Copying Machine	185	185
Replacement Toner	55	55

WORKING NOTES

Inventory at lower of cost or market

ITEM	CEILING	FLOOR	MARKET VALUE	ORIGINAL COST	INVENTORY
MODEL A
Copying Machine	190	155	155	170	155
Replacement Toner	45	29	40	48	40
MODEL B
Copying Machine	215	195	215	185	185
Replacement Toner	130	105	105	55	55

Replacement cost is taken as Market value if it falls between the range of market Ceiling and market floor.

If replacement value is less than both market floor and market ceiling. Then Market value is equal to market floor.

Inventory at lower of cost or NRV

ITEM	NRV	COST	INVENTORY
MODEL A
Copying Machine	190	170	170
Replacement Toner	45	48	45
MODEL B
Copying Machine	215	185	185
Replacement Toner	130	55	55