Item Quantity Unit Cost Replacement Cost/Unit Estimated Selling Price/Unit Compl
ID: 2416828 • Letter: I
Question
Item
Quantity
Unit Cost
Replacement
Cost/Unit
Estimated Selling Price/Unit
Completion & Disposal Cost/Unit
Normal Profit Margin/Unit
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(a)
Lower-of-Cost-or-Market
(Per unit basis)
Item
Quantity
Unit Cost
Replacement
Cost/Unit
Estimated Selling Price/Unit
Completion & Disposal Cost/Unit
Normal Profit Margin/Unit
A 1,800 $15.08 $16.88 $21.11 $3.02 $3.62 B 1,500 16.48 15.88 18.89 1.81 2.41 C 1,700 11.26 10.85 14.47 2.31 1.21 D 1,700 7.64 8.44 12.66 1.61 3.02 E 2,100 12.86 12.66 13.47 1.41 2.01Greg Forda is an accounting clerk in the accounting department of Fiedler Co., and he cannot understand why the market value keeps changing from replacement cost to net realizable value to something that he cannot even figure out. Greg is very confused, and he is the one who records inventory purchases and calculates ending inventory. You are the manager of the department and an accountant.
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Explanation / Answer
a) Calculate the lower-of-cost-or-market using the “individual item” approach. Lower-of-Cost-or-Market (Per unit basis) Item A $ 15.08 Item B $ 15.88 Item C $ 10.95 Item D $ 7.64 Item E $ 12.06 Determination of Market Value (A) (B) (C) Middle value among (A), (B) and (C) Item Current Replacement Cost NRV(Estimated selling price/unit- Completion and Disposal cost/unit) Normal - Normal Profit Margin Market A 16.88 18.09 14.47 16.88 B 15.88 17.08 14.67 15.88 C 10.85 12.16 10.95 10.95 D 8.44 11.05 8.03 8.44 E 12.66 12.06 10.05 12.06 Compare cost and Market value tem Cost Market Lower of Cost or Market (LCM) 1 15.08 16.88 15.08 2 16.48 15.88 15.88 3 11.26 10.95 10.95 4 7.64 8.44 7.64 5 12.86 12.06 12.06
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