LOWER OF COST OR MARKET - Inventory Valuation Replacement...

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LOWER OF COST OR MARKET I. ISSUE: Retailer or Manufacturer has defective merchandise – needs to value at LCM Example: Product: A B C D E Cost $ 6.00 $ 5.00 $ 8.00 $ 8.75 $ 2.00 Replacement cost 4.50 3.00 8.50 9.00 2.50 Expected selling price 10.00 4.50 12.00 10.00 4.00 Cost to complete & dispose 3.00 1.00 2.50 1.50 1.00 Normal profit* 2.00 0.90 2.40 2.00 0.80 *We will assume a normal profit equal to 20% of the selling price II LCM Calculation: Product COST (retail or production) MARKET = Replacement Cost - Limited by a Floor and Ceiling Computation
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Unformatted text preview: Inventory Valuation Replacement Cost Ceiling *NRV = SP – Cost to Complete Floor NRV – Normal Profit A 6.00 4.50 7.00 = 10 00 - 3.00 5.00 = 7.00 - 2.00 5.00 – market floor B 5.00 3.00 3.50 = 4.50 - 1.00 2.60 = 3.50 - .90 3.00 – market rplmt C 8.00 8.50 9.50 = 12 00 - 2.50 7.10 = 9.50 - 2.40 8.00 - cost D 8.75 9.00 8.50 = 10.00 - 1.50 6.50 = 8.50 - 2.00 8.50 – market ceiling E 2.00 2.50 3 .00 = 4.00 - 1.00 2.20 = 3.00 - .80 2.00 - cost * NRV = Net Realizable Value...
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This note was uploaded on 04/05/2012 for the course ACC 241 taught by Professor Jameslock during the Spring '12 term at Northern Virginia Community College.

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