Per Unit Product Cost Replacement Cost Selling Price $ 36 71 56 71 29 $ 41 81 4

Question

Per Unit Product Cost Replacement Cost Selling Price $ 36 71 56 71 29 $ 41 81 4 1 101 21 S 61 101 81 131 31 Selling costs consist of a sales commission equal to 15% of selling price and shipping costs equal to 5% of cost. The normal gross profit percentage is 30% of selling price Requirec What unit value should Royal Decking use for each of its products when applying the lower of cost or market (LCM) rule to units of ending inventory? (Do not round intermediate calculations. Round final answers to 2 decimal places.) Per Unit Replacement cost NRV NRV - NP Market Inventory ProductCost Value

Explanation / Answer

CEILING FLOOR Product Cost Replacement cost NRV NRV - NP Market Per unit inventory value A 41 36 49.8 31.5 36 36 B 81 71 81.8 51.5 71 71 C 41 56 66.8 42.5 56 41 D 101 71 106.3 67 71 71 E 21 29 25.3 16 25.3 21 *NRV = Selling price - (15% of selling price + 5% of cost) NRV for product A = 61-[(61*15%) + (41*5%)] 61 - [9.15+2.05] 49.8 Product B = 101 - [(101*15%) + (81*5%)] 101 - [15.15 + 4.05] 101-19.2 81.8 Product C = 81 - [(81*15%) + (41*5%)] 81 - [12.15+2.05] 81 - 14.2 66.8 Product D = 131 - [(131*15%)+(101*5%)] 131 - [19.65+5.05] 131 - 24.7 106.3 Product E = 31 - [(31*15%) +( 21*5%)] 31-[4.65+1.05] 31-5.7 25.3 *NP = 30% of selling price normal gross profit for product A = 61*30% 18.3 normal gross profit for product B = 101*30% 30.3 normal gross profit for product C= 81*30% 24.3 normal gross profit for product D = 131*30% 39.3 normal gross profit for product E = 31*30% 9.3 * PER UNIT INVENTORY VAULE = COST OR MARKET VALUE [ whichever is less ]. *Calculation of market value: When replacement cost is greater than market ceiling, market value from the LCM rule is market ceiling. When replacement cost falls between market floor and market ceiling market value from the LCM rule is replacement cost.

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