ACCT 3311 FALL 2007 PAGE 9-1
Example 1. Cutlass Company sells an item with an historical cost of $1.10, a selling price of $1.30, selling costs of $.30, and
normal profit equal to 30% of the selling price. For each of the cases below, compute the lower of cost or market amount to
be used for inventory purposes.
Case Replacement cost
Example 2. In January, BMP Stores purchased a truckload of clothing for $9,900. The clothing consisted of men's shirts,
men's pants, and shoes.
Quantity Estimated selling price per item
Shirts 400 $15
Pants 200 $25
Shoes 100 Pairs $55
During the year, the company sold 350 of the shirts, 120 of the pants, and 80 pairs of shoes.
Required: Compute the dollar amount to assign to ending inventory.
Example 3. On November 30, 2004, Ark Company signed a firm contract to buy 100,000 pounds of raw materials at $10 per
pound on February 1, 2005. On December 20, 2004, the market price dropped to $6 per pound. The price was not expected t
change for at least six months. What adjusting entry, if any, should Ark make on December 31, 2004 (year end)?
2003 were $6,000,000. Purchases for the first quarter of 2003 totaled $4,400,000. Compute the estimated inventory at the en
of the first quarter if:
a. gross profit is 40% of sales.
b. Markup on cost is 50%.