Blossom Corporation has two products in its ending inventory, each accounted for
ID: 2554888 • Letter: B
Question
Blossom Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 30% on selling price is considered normal for each product. Specific data with respect to each product follows:
Product #1
Product #2
$8
$19
12
12
2
5
21
33
In pricing its ending inventory using the lower-of-cost-or-market, what unit values should Blossom use for products #1 and #2, respectively?
Product #1
Product #2
Historical cost$8
$19
Replacement cost12
12
Estimated cost to dispose2
5
Estimated selling price21
33
Explanation / Answer
Ceiling = Net realizable value = Selling price - Estimated cost to dispose
Floor = Net realizable value - Normal profit Margin
Market value = Middle of Ceiling, Floor, Replacement cost
Product#1 Product#2 Historical cost 8 19 Ceiling 19 (21-2) 28 (33-5) Floor 12.7 [19-(21*30%)] 18.1 [28-(33*30%)] Replacement cost 12 12 Market 12.7 18.1 Lower of cost or market 8 18.1