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Forester Company has five products in its inventory. Information about the December 31, 2021, inventory follows. Product Quantity Unit Cost Unit Replacement Cost Unit Selling Price A 800 $ 13 $ 15 $ 19 B 600 18 14 21 C 500 6 5 11 D 900 10 7 9 E 600 17 15 16 The...

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Accounting

Forester Company has five products in its inventory. Informationabout the December 31, 2021, inventory follows.

ProductQuantityUnit
Cost		Unit
Replacement
Cost		Unit
Selling
Price
A800$13$15$19
B600181421
C5006511
D9001079
E600171516


The cost to sell for each product consists of a 20 percent salescommission. The normal profit for each product is 30 percent of theselling price.

Required:
1. Determine the carrying value of inventory atDecember 31, 2021, assuming the lower of cost or market (LCM) ruleis applied to individual products.

Determine the carrying value of inventory at December 31, 2021,assuming the lower of cost or market (LCM) rule is applied toindividual products. (Do not round intermediate calculations.)

Product (units)RCNRVNRV-NPMarketCostInventory carrying value
A (800)$12,000
B (600)8,400
C (500)2,500
D (900)6,300
E (600)9,000
Total$0$0$0

Answer & Explanation Solved by verified expert
4.2 Ratings (856 Votes)

Req.1

A B C D E F G
A ( A *Unit replacement cost) ( A * NRV PU) ( A * ( NRV- NP) Middle Value of B,C,D ( A * Unit Cost) Lower of E or F
Product (quantity) Replacement cost NRV NRV-NP Market Cost Inventory
A(800) 12,000 12,160 7,600 12,000 10,400 10,400
B(600) 8,400 10,080 6,300 8,400 10,800 8400
C(500) 2,500 4,400 2,750 2,750 3,000 2750
D(900) 6,300 6,480 4,050 6,300 9000 6,300
E(600) 9,000 7,680 4,800 7,680 10,200 7,680
Total 37,130 43,400 35,530

Working:

1) NRV : Selling price less cost to sell. Cost to sell = 20% of selling price

2) NRV less normal profit margin: Profit =30% of the selling price

3)

Product selling price NRV per unit NRV-NP
A 19 19-(20%×19) =15.2 15.2-(30%×19)=9.5
B 21 21-(20%×21)= 16.8 16.8-(30%×21)=10.5
C 11 11-(20%×11)=8.8 8.8-(30%×11)=5.5
D 9 9-(20%×9)=7.2 7.2-(30%×9)=4.5
E 16 16-(20%×16)=12.8 12.8-(30%×16)=8

4) Inventory value = Lower of cost or market.
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