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Slr corporation has 1,000 units of each of its two products in its year-end inventory. per unit data for each of the products are as follows: product 1 product 2 cost $ 50 $ 34 replacement cost 48 26 selling price 70 36 selling costs 6 4 normal profit 10 8 determine the carrying value of slr’s inventory assuming that the lower of cost or market (lcm) rule is applied to individual products. what is the before-tax income effect of the lcm adjustment?

User Willard
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Final answer:

The carrying value of SLR's inventory is $74,000 when applying the lower of cost or market (LCM) rule to individual products. The before-tax income effect of the LCM adjustment is $10,000.

Step-by-step explanation:

The carrying value of SLR's inventory can be determined by applying the lower of cost or market (LCM) rule to each individual product. The LCM rule states that the carrying value of inventory should be the lower of its cost or its replacement cost. In this case, the replacement costs for product 1 and product 2 are $48 and $26 per unit, respectively.

Since the replacement cost is lower than the cost for both products, the carrying value of the inventory for product 1 would be $48 per unit, and the carrying value of the inventory for product 2 would be $26 per unit. Therefore, the total carrying value of SLR's inventory would be $48,000 for product 1 (1,000 units x $48) and $26,000 for product 2 (1,000 units x $26), making the total carrying value of inventory $74,000.

The before-tax income effect of the LCM adjustment can be calculated by subtracting the carrying value of the inventory under the LCM rule from the carrying value of the inventory under the normal cost flow assumption. Under the normal cost flow assumption, the carrying value of the inventory would be the cost of the inventory, which is $50 per unit for product 1 and $34 per unit for product 2.

Therefore, the total carrying value of the inventory under the normal cost flow assumption would be $50,000 for product 1 (1,000 units x $50) and $34,000 for product 2 (1,000 units x $34), making the total carrying value of inventory $84,000. The before-tax income effect of the LCM adjustment would be $84,000 (carrying value under normal cost flow assumption) - $74,000 (carrying value under LCM rule) = $10,000.

User Kodmanyagha
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