Question

Ross Electronics has one product in its ending inventory. Per unit data consist of the following: cost, $26; selling price, $36; selling costs, $4. What unit value should Ross use when applying the lower of cost or net realizable value rule to ending inventory

Answer 1

Answer:

The unit value os $20 which Ross should use

Explanation:

LCM stand for or termed as Lower of Cost or Market approach- This approach is described as the inventory values at the historical cost or lesser than the replacement cost of market.

NRV stands for or termed as Net Realizable Value- This rule or method is defined as the estimated selling price, which the company expects to gather in the cash form from the customer through the sale of the inventory.

Computing the unit value as:

Given,

Cost price per unit is $20

Selling price per unit is $30

Selling cost per unit is $4

Using the NRV method:

NRV = Selling Price - Selling Cost

= $30 - $4

= $26

Using the lower of cost rule:

Cost = Cost of product

Cost = $20

Therefore, the $20 is the unit value which Rose should use.