Final answer:
For Oslo Corporation's inventory valuation, the lower-of-cost-or-market method yields unit values of $20 for product #1 based on its historical cost; and $27 for product #2 based on the replacement cost, as both are lower than their respective market limits.
Step-by-step explanation:
To determine the unit values Oslo should use for its products #1 and #2 in its ending inventory using the lower-of-cost-or-market method, we have to consider the cost and the market value for each product.
First, we need to calculate the market value limit based on the estimated selling price and the profit margin. The market value cannot be higher than the net realizable value (NRV), which is the estimated selling price minus the estimated cost to dispose of the product. The NRV for product #1 is $40 - $5 = $35, and for product #2 it is $65 - $13 = $52.
The market value also cannot be lower than the NRV minus a normal profit margin. The normal profit margin for each product is $40 * 30% = $12 for product #1 and $65 * 30% = $19.5 for product #2. Therefore, the lowest market value for product #1 is $35 - $12 = $23 and for product #2 is $52 - $19.5 = $32.5.
Now, we compare the historical cost, market value, and replacement cost for each product. For product #1, the historical cost is $20, the replacement cost is $22.5, and the market value as per our calculation is between $23 and $35.
Therefore, we use the historical cost since it is lower than both the market value and replacement cost. For product #2, the historical cost is $35, the replacement cost is $27, and the market value is between $32.5 and $52.
Therefore, we use the replacement cost because it is lower than the historical cost but within the market value range. So, the unit values for product #1 is $20, and for product #2 is $27.