Hamilton Company has two products in its ending inventory. Specific data at the

Question

Hamilton Company has two products in its ending inventory. Specific data at the end of the year for each of the products are as follows: Product 1 Product 2 Cost $11,900 $4,200 Replacement cost 12,500 3,800 Selling price 16,900 9,200 Selling costs 5,300 1,900 Normal profit margin 5,500 3,300 Determine the carrying amount of inventory at December 31, 2018, assuming the lower of cost or market (LCM) rule is applied to individual products. Hamilton Company has two products in its ending inventory. Specific data at the end of the year for each of the products are as follows: Product 1 Product 2 Cost $11,900 $4,200 Replacement cost 12,500 3,800 Selling price 16,900 9,200 Selling costs 5,300 1,900 Normal profit margin 5,500 3,300 Determine the carrying amount of inventory at December 31, 2018, assuming the lower of cost or market (LCM) rule is applied to individual products.

Explanation / Answer

Calculation of upper limit and lower limit for replacement cost to decide market value of inventory. Upper Limit = Net realizable value = Selling price - selling cost Lower Limit = Net realizable value - Profit margin Product 1 Product 2 Upper Limit   $11,600.00 $7,300.00 Lower Limit   $6,100.00 $4,000.00 Replacement Cost $12,500.00 $3,800.00 Market value $11,600.00 $4,000.00 Calculation of the carrying amount of inventory at December 31, 2018 using LCM rule Product 1 Product 2 Carrying amount of inventory Cost $11,900.00 $4,200.00 Market Value $11,600.00 $4,000.00 Value of inventory using LCM rule $11,600.00 $4,000.00 $15,600.00

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