Raw materials are not considered to be Inventory when they are first purchased;

Question

Raw materials are not considered to be Inventory when they are first purchased; only after they are actually used in production.

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Question 61 pts

In March 2012, X Corp. purchased an item of inventory for $400. By June, that item could be purchased for $360 and re-sold for $440. X’s normal profit for the item is $50. At what amount should X report the item in its June 30 balance sheet? X uses the LIFO inventory cost flow assumption. (omit , and $ in the answer)

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Question 71 pts

X, Inc., uses the LIFO cost flow assumption. X had 100 items in its Jan. 1 beginning inventory balance, totaling $500 (that is, $5 each). X purchased another 200 items on Jan. 9 for $7 each. On Jan. 12 X sold 230 items for $10 each. By how much did this LIFO liquidation increase X's usual profit on a sale of 230 items? (omit , and $ in the answer)

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Question 81 pts

X, Inc., is a manufacturer that can produce 10,000 units per quarter at capacity. However, normal production ranges from 9,000 to 10,000 units. During the quarter, X has fixed overhead costs of $80,000 and produces only 8,000 units due to unexpected maintenance issues that forced the facility to close for several days. How much of the $80,000 in fixed overhead costs should X include in its Inventory balances for the quarter? (use the approach we discussed in class and omit , and $ in the answer)

Explanation / Answer

1 )When raw material is purchased the ownership is transferred to the purchaser and will be treated as inventory in purchaser books of accounts, therefore the statement is false that Raw materials are not considered to be Inventory when they are first purchased; only after they are actually used in production

2) As per US GAAP valuation of inventory will be the lowest of flowing cost

·         Carrying cost which is 400 as purchased on march

·         Replacement cost which is 360 if it is purchased in june subject to below

·         The replacement cost should not be exceed net realizable value which is 440 or less than net realizable value minus normal profit , which is 390 (440-50)

The lowest cost is 390 which will be shown in June 30 balance sheet

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