Answers
Lower of cost or market(LCM) rule to units of ending inventory
| PRODUCT | COST | REPLACEMENT COST | NRV | NRV-NP | MARKET | PER UNIT INVENTORY VALUE |
| A | 54 | 49 | 65.6 {74-(74×15%)-(54×5%)} | 39.7 {65.6-(75×35%)} | 49 | 49 |
| B | 94 | 84 | 101.6 {114-(114×15%)-(94×5%)} | 61.7 {101.6-(114×35%)} | 84 | 84 |
| C | 54 | 69 | 82.6 {94-(94×15%)-(54×5%)} | 49.7 {82.6-(94×35%)} | 69 | 54 |
| D | 114 | 84 | 128.1 {144-(144×15%)-(114×5%)} | 88.2 {128.1-(114×35%)} | 88.2 | 88.2 |
| E | 34 | 42 | 39.1 {44-(44×15%)-(34×5%)} | 23.7 {39.1-(44×35%)} | 39.1 | 34 |
NRV = selling price- selling cost
NRV- NP = NRV - 35%of selling price
Market = middle of replacement cost ,NRV,NRV-NP
Per unit inventory value = lower of cost or market.
Conventional retail method
| Cost | Retail | |
| Beginning inventory | 14,000 | 22,000 |
| Plus: purchases | 104,600 | 167,000 |
| Freight in | 8,600 | |
| Less: purchase returns | (5,000) | (8,000) |
| Plus: net markups | 7,000 | |
| Cost to retail percentage 122,000÷188,000= 65% | ||
| Less: net markdowns | (4,000) | |
| Goods available for sale | 122,000 | 184,000 |
| Less: Normal spoilage | (4,400) | |
| Net sales | (154,000) | |
| Estimated ending inventory at retail | 25,600 | |
| Estimated Ending inventory at cost (25,600×65%) | (16,640) | |
| Estimated cost of goods sold | 105,560 |
____×____
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