The inventory of Royal Decking consisted of five products. Information about ending inventory is as follows:| Product | Per Unit Cost | Replacement Cost | Selling Price ||---------|---------------|------------------|---------------|| A | $50 | $45 | $70 || B | $90 | $80 | $110 || C | $50 | $65 | $90 || D | $110 | $88 | $140 || E | $30 | $38 | $40 |Selling costs consist of a sales commission equal to 15% of the selling price and shipping costs equal to 5% of the cost. The normal profit is 30% of the selling price.**Required:**What unit value should Royal Decking use for each of its products when applying the lower of cost or market (LCM) rule to units of ending inventory?**Note:** Do not round intermediate calculations. Round final answers to 2 decimal places.| Product | Cost | Replacement Cost | NRV | NRV Minus NP | Market | Per Unit Inventory Value ||---------|------|------------------|-----|--------------|--------|--------------------------|| A | $50 | $45 | | | | || B | $90 | $80 | | | | || C | $50 | $65 | | | | || D | $110 | $88 | | | | || E | $30 | $38 | | | | |**Explanation of Calculations:**- **NRV (Net Realizable Value)**: Calculated as Selling Price minus Selling Costs (commission and shipping).- **NRV Minus NP (Normal Profit)**: NRV minus the normal profit percentage of the selling price.- **Market Value**: The lower of the Replacement Cost and NRV Minus NP.- **Per Unit Inventory Value**: The lower of the Cost and Market Value.This information is used to determine the appropriate inventory valuation using the lower of cost or market rule for accounting purposes.

The inventory is valued and recorded at the lower of cost or market value. This is done to anticipate future losses under the conservatism principle of accounting. The inventory may be maintained using a periodic or perpetual system.Determine sales commission, shipping cost, net profit, and NRV as follows: - ProductCostSelling PriceSales CommissionShipping CostsNRVNP(a)(b)(c) =(b) x 15%(d)=(a) x 5%(e) =(b) - (c) - (d)(b) x 30%A$50.00$45.00$6.75$2.50$35.75$13.50B$90.00$80.00$12.00$4.50$63.50$24.00C$50.00$65.00$9.75$2.50$52.75$19.50D$110.00$80.00$12.00$5.50$62.50$24.00E$30.00$38.00$5.70$1.50$30.80$11.40Per Unit Inventory Cost: ProductCostReplacement CostNRVNRV-NPMarketPer unit Inventory ValueA$50.00$45.00$35.75$22.25$45.00$35.75B$90.00$80.00$63.50$39.50$80.00$63.50C$50.00$65.00$52.75$33.25$65.00$50.00D$110.00$80.00$62.50$38.50$80.00$62.50E$30.00$38.00$30.80$19.40$38.00$30.00

Business

Accounting

The inventory of Royal Decking consisted of five products. Information about ending inventory is as follows: Product A B C D E Cost $ 50 90 50 Product 110 30 A B C D E Per Unit Replacement Cost Selling costs consist of a sales commission equal to 15% of selling price and shipping costs equal to 5% of cost. The normal profit is 30% of selling price. $ $ 45 80 65 80 38 Required: What unit value should Royal Decking use for each of its products when applying the lower of cost or market (LCM) rule to units of ending inventory? Note: Do not round intermediate calculations. Round final answers to 2 decimal places. Cost Replacement cost 50 $ 90 50 110 30 Selling Price $ 70 45 80 110 90 140 40 65 80 38 NRV NRV minus NP Market < Prex Per Unit Inventory Value 5 of 7 Next >

The inventory of Royal Decking consisted of five products. Information about ending inventory is as follows: Product A B C D E Cost $ 50 90 50 Product 110 30 A B C D E Per Unit Replacement Cost Selling costs consist of a sales commission equal to 15% of selling price and shipping costs equal to 5% of cost. The normal profit is 30% of selling price. $ $ 45 80 65 80 38 Required: What unit value should Royal Decking use for each of its products when applying the lower of cost or market (LCM) rule to units of ending inventory? Note: Do not round intermediate calculations. Round final answers to 2 decimal places. Cost Replacement cost 50 $ 90 50 110 30 Selling Price $ 70 45 80 110 90 140 40 65 80 38 NRV NRV minus NP Market < Prex Per Unit Inventory Value 5 of 7 Next >

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Concept explainers

Inventory Accounting

Inventory accounting is that branch of accounting that helps in determining the specific value of assets at different stages of production and development.

Question

The inventory of Royal Decking consisted of five products. Information about ending inventory is as follows:

| Product | Per Unit Cost | Replacement Cost | Selling Price |
|---------|---------------|------------------|---------------|
| A | $50 | $45 | $70 |
| B | $90 | $80 | $110 |
| C | $50 | $65 | $90 |
| D | $110 | $88 | $140 |
| E | $30 | $38 | $40 |

Selling costs consist of a sales commission equal to 15% of the selling price and shipping costs equal to 5% of the cost. The normal profit is 30% of the selling price.

**Required:**

What unit value should Royal Decking use for each of its products when applying the lower of cost or market (LCM) rule to units of ending inventory?

**Note:** Do not round intermediate calculations. Round final answers to 2 decimal places.

| Product | Cost | Replacement Cost | NRV | NRV Minus NP | Market | Per Unit Inventory Value |
|---------|------|------------------|-----|--------------|--------|--------------------------|
| A | $50 | $45 | | | | |
| B | $90 | $80 | | | | |
| C | $50 | $65 | | | | |
| D | $110 | $88 | | | | |
| E | $30 | $38 | | | | |

**Explanation of Calculations:**

- **NRV (Net Realizable Value)**: Calculated as Selling Price minus Selling Costs (commission and shipping).
- **NRV Minus NP (Normal Profit)**: NRV minus the normal profit percentage of the selling price.
- **Market Value**: The lower of the Replacement Cost and NRV Minus NP.
- **Per Unit Inventory Value**: The lower of the Cost and Market Value.

This information is used to determine the appropriate inventory valuation using the lower of cost or market rule for accounting purposes.

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