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jolli1 [7]
3 years ago
5

Herman Company has three products in its ending inventory. Specific per unit data at the end of the year for each of the product

s are as follows:Product 1 Product 2 Product 3Cost $ 20 $ 90 $ 50Replacement cost 18 85 40Selling price 40 120 70Selling costs 6 40 10Normal profit margin 5 30 12Required:What unit values should Herman use for each of its products when applying the lower of cost or market (LCM) rule to ending inventory
Business
1 answer:
tekilochka [14]3 years ago
5 0

Answer:

Explanation:

In this question, we apply the lower of cost or market (LCM) rule which is shown below:

For Product 1

The Cost is $20

And, the market value = Selling price - selling cost - normal profit margin

                                     = $40 - $6 - $5

                                     = $29

So, the lower value would be $20

For Product 2

The Cost is $90

And, the market value = Selling price - selling cost

                                     = $120 - $40

                                     = $80

So, the lower value would be $80

For Product 3

The Cost is $50

And, the market value = Selling price - selling cost - normal profit margin

                                     = $70 - $10 - $12

                                     = $48

So, the lower value would be $48

In the product 2, the replacement cost is 85 and the market value without considering the normal profit margin is $80 which is less than the replacement cost that's why we do not take the normal profit margin

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Since the Electrotech Corporation manufactures two industrial-sized electrical devices: generators and alternators, and both of these products require wiring and testing during the assembly process, and each generator requires 2 hours of wiring and 1 hour of testing and can be sold for a $ 250 profit, while each alternator requires 3 hours of wiring and 2 hours of testing and can be sold for a $ 150 profit, and there are 260 hours of wiring time and 140 hours of testing time available in the next production period and Electrotech wants to maximize profit, to determine this situation the following mathematical logical reasoning must be carried out:

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