prepare a brief memorandum to explain why expected selling prices are important in t 645839
Professional Simulation
In this simulation, you will address questions related to inventory valuation and measurement.
Situation
T.L. Wang Inc. manufactures and sells four products, the inventories of which are priced at cost or market, whichever is lower. A normal profit margin rate of 30% is usually maintained on each of the four products.
The following information was compiled as of December 31, 2012.
|
Product |
Original Cost |
Cost to Replace |
Estimated Cost to Dispose |
Expected Selling Price* |
|
A |
$17.50 |
$14.00 |
$ 6.00 |
$ 30.00 |
|
B |
48.00 |
78.00 |
26.00 |
100.00 |
|
C |
35.00 |
42.00 |
15.00 |
80.00 |
|
D |
47.50 |
45.00 |
20.50 |
95.00 |
*Normal profit margin is 30% of selling price.
LCM
Use a computer spreadsheet to prepare a schedule containing unit values (including “floor” and “ceiling”) for determining the lower of cost or market (LCM) on an individual product basis. The last column of the schedule should contain, for each product, the unit value for the purpose of inventory valuation resulting from the application of the lower of cost or market rule to 1,000 units.
Journal Entry
Prepare the journal entry to record the lower of cost or market for T.L. Wang. Assume 1,000 units of each product and that T.L. Wang uses a perpetual inventory system.
Explanation
Prepare a brief memorandum to explain why expected selling prices are important in the application of the lower of cost or market rule to 1,000 units.