Item Quantity Unit Cost Replacement Cost/Unit Estimated Selling Price/Unit Compl

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)

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Pharoah Co. follows the practice of valuing its inventory at the lower-of-cost-or-market. The following information is available from the company’s inventory records as of December 31, 2017.

Item

Quantity

Unit Cost

Replacement
Cost/Unit

Estimated Selling
Price/Unit

Completion & Disposal
Cost/Unit

Normal Profit
Margin/Unit

A 1,200 $8.70 $9.74 $12.18 $1.74 $2.09 B 900 9.51 9.16 10.90 1.04 1.39 C 1,100 6.50 6.26 8.35 1.33 0.70 D 1,100 4.41 4.87 7.31 0.93 1.74 E 1,500 7.42 7.31 7.77 0.81 1.16
Greg Forda is an accounting clerk in the accounting department of Pharoah 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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(a)

Calculate the lower-of-cost-or-market using the individual-item approach.

Lower-of-Cost-or-Market
(Per unit basis)

Item A $

Item B $

Item C $

Item D $

Item E $

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Explanation / Answer

ans)

Item no. Cost per unit Replacement Net Net rea. value Designated Quantity Final

cost Realisable less profit Normal inventory

value value value

___________________________________________________________________________________________

A 8.7 9.74 10.44* 8.35** 9.74 1200 11688

B 9.51 9.16 9.86 8.47 9.16 900 8244

C 6.5 6.26 7.02 6.32 6.32 1100 6952

D 4.41 4.87 6.38 4.64 4.87 1100 5357

E 7.42 7.31 6.96 5.8 7.31 1500 10965

43206

* 12.18 - 1.74 = 10.44

** 10.44 - 2.09 = 8.35

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