Question

The inventory of Royal Decking consisted of five products. Information about the December 31, 2021. Inventory is as follows:

Product Cost
A $ 46
B 86
C 46
D 106
E 26
Per Unit
Replacement Cost $41 76 61
Selling Price $ 66 106 86 136 34 36
Selling costs consist of a sales commission equal to 10% of selling price and shipping costs equal to 5% of cost. The normal profit is 25% of selling price. Required: 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.)

Answer 1

Unit values are given below

Step-by-step explanation:

The unit value Royal Decking should use for each of its products when applying the lower of cost or market (LCM) rule to units of ending inventory can be calculated as follows

Product Cost Replacement NRV NRV - NP Market Inventory Value

A $46 $41 $57.10 $40.60 $41 $41

B $86 $76 $91.10 $64.60 $76 $76

C $46 $61 $75.10 $53.60 $61 $46

D $106 $76 $117.10 $83.10 $83.10 $83.10

E $26 $34 $31.10 $22.10 $31.10 $26

Woking (NRV)

NRV = Selling price -Sales commission - Shipping cost

Product A ($66 - [$66*10%] - [$46*5%]) = $57.10

Product B ($106 - [$106*10%] - [$86*5%]) =$91.10

Product C ($86 - [$86*10%] - [$46*5%]) =$75.10

Product D ($136 - [$136*10%] - [$106*5%]) =$117.10

Product E ($36 - [$36*10%] - [$26*5%]) =$31.10

Working (NRV - NP )

Product A ($57.10 - [$66*25%]) = $40.60

Product B ($91.10 - [$106*25%]) = $64.60

Product C ($75.10 - [$86*25%]) = $53.60

Product D ($117.10 - [$136*25%]) = $83.10

Product E ($31.10 - [$36*25%]) = $22.10