Question

Lower-of-Cost-or-Market Inventory On the basis of the following data, determine the value of the inventory at the lower of cost or market. Assemble the data in the form illustrated in Exhibit 10. Product Inventory Quantity Cost Per Unit Market Value per Unit (Net Realizable Value) Class 1: Model A 46 $116 $139 Model B 49 243 239 Model C 43 233 252 Class 2: Model D 37 79 98 Model E 16 151 130 a. Determine the value of the inventory at the lower of cost or market applied to each item in the inventory.

Answer 1

In class 2 ., The Model D is the Top/ favorite one having highest market return (24%) with lowest inventory cost ($79)

Explanation:

To Determine the value of the inventory at the lower of cost or market applied to each item in the inventory. simply we should calculate the profit margin for each category

Profit margin =  (market value - cost price) = Profit ÷ cost price × 100

Class 1:

Model A

46 $116 $139  

Profit margin = (139 - 116) = 23  ÷ 116 × 100 = 19.32%

Model B

49 243 239

Profit margin =  (239 - 243)= -4 ÷ 243 × 100 = - 1.65% (loss)

Model C

43 233 252

Profit margin =   (252 - 233) = 19 ÷ 233 × 100 =  8.15%

Class 2:

Model D

37 79 98

Profit margin =  (98 - 79) = 19 ÷ 79 × 100 =  24%

Model E

6 151 130

Profit margin =  (130 - 151) = - 21 ÷ 79 × 100 = -13.91 % (loss)

Result

In class 1

Model A is preferable., It has the lowest inventory value and has highest market value (Returns) at 19.82%

In class 2

Model D is preferable., It has the lowest inventory value and has highest market value (Returns) at 24%

Overall the Model D is the Top/ favorite one having highest market return with lowest inventory cost