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At Hawkeye Security the basic security system for home use has a cost of $160, a replacement cost of $150, a net realizable value of $145, and a normal profit margin of $20. Hawkeye Security would record ___ as the inventory value for this product using the lower-of-cost-or-market rule.

Respuesta :

tanseershar

Answer:

$125

Explanation:

Net realizable  value                  $145

Less: Normal Profit Margin        ($20)

Inventory Value                          $125

Inventory value shall be NRV less normal profit for lower of cost or market value method.

anthougo

Based on the lower-of-cost-or market value rule, Hawkeye Security would record the inventory value for this product as $145.

Data and Calculations:

Historical cost of security system = $160

Replacement cost of the system = $150

Net realizable value = $145

Normal profit margin = $20

The market value of the system = $150

Net realizable value less normal profit margin = $125 ($145 - $20)

Under the LCM rule, the replacement cost of $150 cannot exceed the net realizable value of $145.  The replacement cost of $150 cannot be lower than the net realizable value of $145 less the normal profit margin of $20.  This means it cannot be lower than $125 ($145 - $20).  

Thus, the inventory value for this product is $145.

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