Question

Dell Corp. has unfinished inventory with a sales value of $10,000, estimated cost of completion and disposal of $2,000, and a normal profit margin of 20 percent of sales. Determine Dell Corp.'s net realizable value. Select an answer from the options below:

a) $2,500
b) $6,000
c) $8,000
d) $10,000

Answer 1

The net realizable value (NRV) for Dell Corp.'s unfinished inventory with a sales value of $10,000, estimated costs of $2,000, and a normal profit margin of 20% is $6,000.

Step-by-step explanation:

Net realizable value (NRV) is the estimated selling price in the ordinary course of business minus the estimated costs of completion and the estimated costs necessary to make the sale.

In this case, Dell Corp. has unfinished inventory with a sales value of $10,000 and an estimated cost of completion and disposal of $2,000. The normal profit margin of 20 percent needs to be subtracted from the selling price to arrive at the NRV. Therefore, we calculate the NRV as follows:

Net Realizable Value = Sales Value - Cost of Completion and Disposal - Normal Profit Margin

Normal Profit Margin = Sales Value × Profit Margin Percentage

= $10,000 × 20%

= $2,000

Hence, NRV = $10,000 - $2,000 (completion and disposal costs) - $2,000 (normal profit margin)

= $6,000