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Sheridan Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 30% on selling price is considered normal for each product. Specific data with respect to each product follows: Product #1 Product #2 Historical cost $11 $21 Replacement cost 7 13 Estimated cost to dispose 8 10 Estimated selling price 22 35 In pricing its ending inventory using the lower-of-cost-or-market, what unit values, rounded to the nearest dollar, should Sheridan use for products #1 and #2, respectively?

Respuesta :

anthougo

Answer:

Sheridan Corporation

Value of Ending Inventory:

                                       Product #1    Product #2

Before the new LCM rule:

Ending Inventory                 $7                 $13

After the new LCM rule:

Ending Inventory              $ 11                 $21

Explanation:

a) Data and Calculations:

                                       Product #1    Product #2

Historical cost                      $11                $21

Replacement cost                  7                   13

Estimated cost to dispose     8                   10

Estimated selling price        22                  35

Net realizable value             14 (22 - 8)     25 (35 - 10)

Less profit margin (30%)       4.2                7.5

Normal historical cost           9.8               17.5

Method of pricing its ending inventory = lower-of-cost-or-market

                                       Product #1    Product #2

Historical cost                      $11                $21

Replacement cost                  7                   13

Net realizable value             14                  25

Before the new LCM rule:

Ending Inventory                   7                   13

After the new LCM rule:

Ending Inventory                 11                   21

The new LCM rule states that the measurement of the ending inventory is solely restricted to the lower of cost and net realizable value.

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