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Herman Company has three products in its ending inventory. Specific per unit data at the end of the year for each of the products are as follows:
Product 1 Product 2 Product 3
Cost $ 37 $ 107 $ 67 Selling price 91 171 121 Costs to sell 10 74 27 Required:
What unit values should Herman use for each of its products when applying the lower of cost or net realizable value (LCNRV) rule to ending inventory?

Respuesta :

The unit value that Herman should use is 37 of product 1, 97 of product 2 and 67 of product 3, while using lower of cost or net realizable value rule to ending inventory.

               

                 Cost   Selling Price   Costs to Sell   NRV Inventory value

                      A              B                     C           D=(B-C) E= (lower of A&D)

Product 1        37            91                   10                 81              37

Product 2       107          171                  74                97              97

Product 3        67          121                  27               94               67

Both the raw ingredients used during manufacturing and the finished commodities that are offered for sale are covered by the definition of inventory. One of a company's most valuable assets is its inventory because it is one of the main sources of generating revenue and, consequently, a source of profits for the shareholders of the company. There are three different categories of inventory: finished commodities, work-in-progress, and natural resources. On the statement of financial position, it is listed as a liquid asset.

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