Question

Sandhill Inc. has the following information related to an item in its ending inventory. Packit (Product # 874) has a cost of $76, a replacement cost of $60, a net realizable value of $68, and a normal profit margin of $4. What is the final lower-of-cost-or-market inventory value for Packit? $60. $68. $64. $76.

Answer 1

$64

Step-by-step explanation:

The computation of final lower-of-cost-or-market inventory value is given below:-

Ceiling LCM = Estimated selling price - Cost to disposal or NRV ($68)

Floor LCM = NRV - Normal profit

= $68 - $4

= $64

Conditions: 1)When the cost of replacement is greater than the LCM ceiling then the LCM ceiling is considered the market cost.

2)If the cost of replacement is greater than floor LCM then floor LCM is considered to be the market cost

So, second condition is satisfied.

The market value is $64, cost is $76.

Lower of cost or market rate is $64