Exercise 9-3 Item No. Quantity Cost per Unit Cost to Replace Estimated Selling P
ID: 2458425 • Letter: E
Question
Exercise 9-3
Item No.
Quantity
Cost per Unit
Cost to Replace
Estimated Selling Price
Cost of Completion and Disposal
Normal Profit
Exercise 9-3
Michael Bolton Company follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis.Item No.
Quantity
Cost per Unit
Cost to Replace
Estimated Selling Price
Cost of Completion and Disposal
Normal Profit
1320 1,500 $5.15 $4.83 $7.25 $0.56 $2.01 1333 1,200 4.35 3.70 5.64 0.81 0.81 1426 1,100 7.25 5.96 8.05 0.64 1.61 1437 1,300 5.80 4.99 5.15 0.40 1.45 1510 1,000 3.62 3.22 5.23 1.29 0.97 1522 800 4.83 4.35 6.12 0.64 0.81 1573 3,300 2.90 2.58 4.03 1.21 0.81 1626 1,300 7.57 8.37 9.66 0.81 1.61From the information above, determine the amount of Bolton Company inventory.
Explanation / Answer
To determine the inventory amount using LCM, we need to determine the NRV (Estimated Selling Price - Cost of Completion and Disposal), also known as ceiling. Additionally we, need to calculate the "Floor" which is the difference between the NRV and Normal Profit.
To estimate the market value, we compare the NRV with the higher of Cost to Replace and Floor and take the lower of 2 as the market value. Once, the market value has been determined, we compare it with the actual cost to determine the inventory amount as per the lower of cost or market value. The table showing the computation is given below:
Item No. Quantity (A) Cost per Unit Cost to Replace Estimated Selling Price Cost of Completion and Disposal Normal Profit NRV (Ceiling) NRV – Normal Profit (Floor) Higher of Floor or Cost to Replace Subject to Ceiling Lower of Cost or Market (B) Final Inventory Value (A*B) 1320 1,500 5.15 4.83 7.25 0.56 2.01 6.69 4.68 4.83 4.83 7,245 1333 1,200 4.35 3.7 5.64 0.81 0.81 4.83 4.02 4.02 4.02 4,824 1426 1,100 7.25 5.96 8.05 0.64 1.61 7.41 5.8 5.96 5.96 6,556 1437 1,300 5.8 4.99 5.15 0.4 1.45 4.75 3.3 4.75 4.75 6,175 1510 1,000 3.62 3.22 5.23 1.29 0.97 3.94 2.97 3.22 3.22 3,220 1522 800 4.83 4.35 6.12 0.64 0.81 5.48 4.67 4.67 4.67 3,736 1573 3,300 2.9 2.58 4.03 1.21 0.81 2.82 2.01 2.82 2.82 9,306 1626 1,300 7.57 8.37 9.66 0.81 1.61 8.85 7.24 8.37 7.57 9,841 Total Inventory Value $50,903Related Questions
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