Question

Exercise 5-10 Lower of cost or market LO P2 Martinez Company's ending inventory includes the following items. Product Units Cost per Unit Market per Unit Helmets 36 $ 58 $ 54 Bats 29 76 82 Shoes 50 95 99 Uniforms 54 40 40 Compute the lower of cost or market for ending inventory applied separately to each product.

Answer 1

Helmets $ 1,944

Bats $ 2,204

Shoes $ 4,750

Uniforms $ 2,000

Step-by-step explanation:

We will compare between the cost and the proceeds from sale of the units. As accounting wants to represent reality it cannot value the company goods higher than it can acceess to it in the market regardless of the purchase cost.

This may generate losses to represent the decrease in the overall value of the good.

Helmets 36 $ 58 $ 54

Helmets cost is higher than market so we recognize a loss an valued at $54

36 units x $54 = $1,944

Bats 29 $76 $82

Bats productions cost is lower so we keep it.

29 units x $76 = $2,204

Shoes 50 $95 $99

Shoes also has a lower production cost

50 units x $95 = $4,750

Uniforms 54 $40 $40

As they are the same we just leave with $40

50 units x $40 = $2000