Lower of cost or market inventory, Accounting Basics

Lower of Cost or Market Inventory

       
                 

Bob's Jewelry Company's inventory records indicates the following:

       
               

Normal

 

Quantity

Unit Cost

Replacement Cost

   

Profit

Item

On Hand

When Acquired

at Year-End

Selling Price

Margin

                 

Watches

100

$258

$269

$230

50

Rings

250

903

1,025

950

100

Bracelets

60

1,588

1,680

1,783

80

                 

Compute the total ending inventory value using the Lower of Cost or Market rule

       

applied to each item.

             
                 
                 
                 

Answer

               
 

Bob's Jewelry Company

       
                 

Item

Quantity on hand (a)

Cost per unit,$

Replacement cost per item, $

Lower of Cost / Replacement cost per unit, $ (b)

Total value (a*b), $

     
     

 

 

 

 

 

 

     

Watches

100

            258.00

            269.00

                               258.00

    25,800

     

Rings

250

            903.00

         1,025.00

                               903.00

  225,750

     

Bracelets

60

         1,588.00

         1,680.00

                            1,588.00

    95,280

     

 

 

 

 

 

  346,830

     
                 

Here market value is the replacement cost of inventories at year end. Accountants define replacement cost as market value.

     

 

 

 

Posted Date: 7/12/2012 3:23:56 AM | Location : United States







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