Can someone please explain these to me? Thank you in advance! 1. Blossom Corpora
ID: 2567753 • Letter: C
Question
Can someone please explain these to me? Thank you in advance!
1. Blossom Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 20% on selling price is considered normal for each product. Specific data with respect to each product follows:
Product #1
Product #2
$8
$16
9
12
1
5
18
31
In pricing its ending inventory using the lower-of-cost-or-market, what unit values should Blossom use for products #1 and #2, respectively?
2. Sunland Company sells product 2005WSC for $70 per unit. The cost of one unit of 2005WSC is $67, and the replacement cost is $66. The estimated cost to dispose of a unit is $6, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?
3. Crane Company sells product 1976NLC for $30 per unit. The cost of one unit of 1976NLC is $29, and the replacement cost is $28. The estimated cost to dispose of a unit is $5, and the normal profit is 20%. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market?
4. Given the historical cost of product Z is $39, the selling price of product Z is $44, costs to sell product Z are $3, the replacement cost for product Z is $40, and the normal profit margin is 40% of sales price, what is the amount that should be used to value the inventory under the lower-of-cost-or-market method?
5.Given the historical cost of product Dominoe is $21, the selling price of product Dominoe is $26, costs to sell product Dominoe are $3, the replacement cost for product Dominoe is $22, and the normal profit margin is 40% of sales price, what is the cost amount that should be used in the lower-of-cost-or-market comparison?
$22.
6. Carla Vista Corporation acquired two inventory items at a lump-sum cost of $115000. The acquisition included 2850 units of product LF, and 5700 units of product 1B. LF normally sells for $30 per unit, and 1B for $10 per unit. If Carla Vista sells 950 units of LF, what amount of gross profit should it recognize?
$3056.
7. At a lump-sum cost of $62500, Blossom Company recently purchased the following items for resale:
Item
No. of Items Purchased
Resale Price Per Unit
M
2700
$3.10
N
1350
10.70
O
4700
4.70
M
N
O
$4.31
$14.89
$6.54
$3.10
$10.70
$4.70
$3.71
$12.80
$5.62
$7.14
$7.14
$7.14
8.
During 2017, Blossom Co., a manufacturer of chocolate candies, contracted to purchase 260000 pounds of cocoa beans at $5.00 per pound, delivery to be made in the spring of 2018. Because a record harvest is predicted for 2018, the price per pound for cocoa beans had fallen to $3.80 by December 31, 2017.
Of the following journal entries, the one which would properly reflect in 2017 the effect of the commitment of Blossom Co. to purchase the 260000 pounds of cocoa is
9.Carla Vista Corporation, a manufacturer of ethnic foods, contracted in 2017 to purchase 550 pounds of a spice mixture at $2.75 per pound, delivery to be made in spring of 2018. By 12/31/17, the price per pound of the spice mixture had risen to $3.05 per pound. In 2017, Carla Vista should recognize
10.The following information is available for October for Sunland Company.
$290000
930000
66.67%
A fire destroyed Sunland’s October 31 inventory, leaving undamaged inventory with a cost of $18000. Using the gross profit method, the estimated ending inventory destroyed by fire is
Product #1
Product #2
Historical cost$8
$16
Replacement cost9
12
Estimated cost to dispose1
5
Estimated selling price18
31
Explanation / Answer
Allowed to answer first 4 parts only, in case of multiple questions. please post rest of the questions separately
Concept used lower of cost or market is a conservative concept in valuing the inventory.
NRV used here is net realizable value.
So owners of the business reports, lower among the value of Market costs and historical costs
Market value floats between the Ceiling value and Floor value and if replacement cost is between the two . take it as the market value. otherwise take floor value as the market value.
if replacement cost is above both ceiling value and floor value then take ceiling value as the market value
In short take the middle number of RC, ceiling and floor value and compare it with historical cost and take the lower from this for inventory cost
Answer 1: Product 1:
Cost of the product: $8
RC: $9
Ceiling : NRV : Estimated ceiling price - cost to dispose = $18 - $1 = $17
Floor Value = NRV - Profit margin = 17 - (18*0.2) = 17 - 3.6 = $13.4
Market price = $13.4
LCM is $8
Product 2:
RC: 12
Ceiling : NRV : Estimated ceiling price - cost to dispose = $31- $5 = $26
Floor :NRV - PM 26-(31*0.2) = 19.8
Market value : $19.8
LCM is $16
So for question 1 answer is D
Answer 2 :
RC : 66
Ceiling : NRV : Selling price - estimated cost to dispose : 70-6 = 64
Floor : NRV- PM= 64-(70*0.4 ) = 64 - 28 = $36
MArket $64
LCM is $64
option B
Answer 3: RC : $28
Ceiling : NRV : selling price - estimated cost to dispose : 30 - 5 = 25
Floor value or market value : 25 - (30*0.2 ) = 19
LCM is $25
Option C
Answer 4: RC: $40
Ceiling value : selling price - cost to sell product : 44-3 = 41
Floor value : NRV - PM = $41-(44*0.4) = $23.4
LCM is $40
Option C is the answer