Question

Question:In some instances, accounting principles require a departure from valuing inventories at cost alone. Determine the proper unit inventory price in the following cases, under the lower-of-cost-or-market rule. Cases 1 2 3 4 5 Cost \(15.90 \)16.10 \(15.90 \)15.90 $15.90 Net realizable value 14.50 19.20 15.20 10.40 16.40 Net realizable value less normal profit 12.80 17.60 13.75 8.80 14.80 Market (replacement cost) 14.80 17.20 12.80 9.70 16.80

Short answer

The inventory price for Case 1 equals $14.50, Case 2 equals $16.10, Case 3 equals $13.75, case 4 equals $9.70, and Case 5 equals $15.90.

Step-by-step solution

Step-by-step-solutionStep1

The designated market value of the inventory is determined as follows:

Cases	Net realizable value	Net realizable value less normal profit	Replacement cost	Designated market value
Case 1	$14.50	$12.80	$14.80	$14.50
Case 2	19.20	17.60	17.20	17.60
Case 3	15.20	13.75	12.80	13.75
Case 4	10.40	8.80	9.70	9.70
Case 5	$16.40	$14.80	$16.80	$16.40

Step 2:

The inventory price as per the lower-of-cost-or-market-value method is determined as follows:

Cases	Cost	Designated market value	Lower-of-cost-or-market-value
Case 1	$15.90	$14.50	$14.50
Case 2	16.10	17.60	16.10
Case 3	15.90	13.75	13.75
Case 4	15.90	9.70	9.70
Case 5	$15.90	$16.40	$15.90