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 sellCalculate NRV for each product:- **Product 1**: - NRV = 52 - 10 = $42 - **Product 2**: - NRV = 132 - 48 = $84 - **Product 3**: - NRV = 82 - 14 = $68Now, 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.

Name: M3 Han Company has three products in its ending inventory. Specific pe
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Description: 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

1. While valuing the closing inventory, it should be valued at cost or net realisable value (NRV) whichever is lower.2. Net Realizable Value means Estimated the Selling Price less estimated cost to sell the product.Calculation Of The Net Realizable Value -Net Realizable Value = (Selling Price - Costs To Sell) Net Realizable ValueProduct 1Product 2Product 3Selling Price$52$132$82Less : Costs To Sell-$10- $48- $14Net Realizable Value$42$84$68Calculation Of The Unit Values Should Han Use For Each Of Its Products When Applying The Lower of Cost Or Net Realizable Value (LCNRV) - ProductCostNRVPer Unit Inventory Value1$24$42$242$94$84$843$54$68$54

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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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 the market with the motive of earning profit.

Topic Video

Question

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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