Question

The McQuenny Company’s ending inventory is composed of 100 units that had an acquisition cost of $25 per unit and 50 units that had an acquisition cost of $30 per unit. If 150 units have an NRV of $27 per unit, what value should be assigned to the company’s ending inventory assuming that it applies the lower-of-cost-or-net realizable value method on an individual item basis?

Answer 1

$4,000

Step-by-step explanation:

According to the accounting principle, the inventory should be valued at lower of cost or net realizable value. The calculation is shown below:

Based on acquisition cost

100 units × $25 = $2,500

50 units × $30 = $1,500

Total ending inventory = $4,000

Based on NRV

150 units × $27 = $4,050

Total ending inventory = $4,050

As we see that the lower cost would be $4,000. So, $4,000 would be assigned to the ending inventory