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Data related to the inventories of Mountain Ski Equipment and Supplies is presented below:


Skis Boots Apparel Supplies

Selling price $ 180,000 $ 150,000 $ 120,000 $ 60,000

Cost 128,000 133,000 90,000 48,000

Replacement cost 120,000 130,000 110,000 50,000

Sales commission 10 % 10 % 10 % 10 %

Normal gross profit ratio 20 % 20 % 15 % 15

%


In applying the lower of cost or market rule, the inventory of boots would be valued at:


A) $135,000


B) $133,000


C) $130,000


D) $105,000

Respuesta :

Answer:

C) $130,000

Explanation:

Based on the lower of cost or market rule, the valued of the inventory would be

Replacement cost = $130,000

Selling price = $150,000 - $150,000 × 10% = $135,000

After considering the normal gross profit ratio, the value would be

= $135,000 - $150,000 × 20%

= $105,000

If we compare the cost and replacement value, then the less value would be considered i.e $130,000

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