FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Concept explainers

Inventory Valuation
Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…
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M3

Han 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 | $ 24 | $ 94 | $ 54 | | Selling price | 52 | 132 | 82 | | Costs to sell | 10 | 48 | 14 | **Required:** What unit values should Han use for each of its products when applying the lower of cost or net realizable value (LCNRV) rule to ending inventory? **Calculation:** To determine the Net Realizable Value (NRV), calculate as follows: NRV = Selling price - Costs to sell Calculate NRV for each product: - **Product 1**: - NRV = 52 - 10 = $42 - **Product 2**: - NRV = 132 - 48 = $84 - **Product 3**: - NRV = 82 - 14 = $68 Now, use the lower of the cost or NRV for each product: | Product | Cost | NRV | Per Unit Inventory Value | |---------|------|-----|---------------------------| | 1 | 24 | 42 | **24** | | 2 | 94 | 84 | **84** | | 3 | 54 | 68 | **54** | The Per Unit Inventory Value is the lower value between the cost and NRV for each product.
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Transcribed Image Text:Han 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 | $ 24 | $ 94 | $ 54 | | Selling price | 52 | 132 | 82 | | Costs to sell | 10 | 48 | 14 | **Required:** What unit values should Han use for each of its products when applying the lower of cost or net realizable value (LCNRV) rule to ending inventory? **Calculation:** To determine the Net Realizable Value (NRV), calculate as follows: NRV = Selling price - Costs to sell Calculate NRV for each product: - **Product 1**: - NRV = 52 - 10 = $42 - **Product 2**: - NRV = 132 - 48 = $84 - **Product 3**: - NRV = 82 - 14 = $68 Now, use the lower of the cost or NRV for each product: | Product | Cost | NRV | Per Unit Inventory Value | |---------|------|-----|---------------------------| | 1 | 24 | 42 | **24** | | 2 | 94 | 84 | **84** | | 3 | 54 | 68 | **54** | The Per Unit Inventory Value is the lower value between the cost and NRV for each product.
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