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21 August, 11:34

Herman 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 $ 26 $ 96 $ 56 Replacement cost 24 91 46 Selling price 46 126 63 Selling costs 8 31 14 Normal profit margin 11 36 18 Required: What unit values should Herman use for each of its products when applying the lower of cost or market (LCM) to ending inventory

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  1. 21 August, 11:42
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    Answer and Explanation:

    The computation of the unit values for each of the product using the lower of cost or market (LCM) for ending inventory is shown below:

    For Product 1

    The Cost is $26

    And, the market value = Selling price - selling cost - normal profit margin

    = $46 - $8 - $11

    = $27

    So, the lower value would be $26

    For Product 2

    The Cost is $96

    And, the market value = Selling price - selling cost

    = $126 - $31

    = $95

    So, the lower value would be $95

    For Product 3

    The Cost is $56

    And, the market value = Selling price - selling cost

    = $63 - $14

    = $49

    So the lower value would be $49

    As we can see that

    In the product 2, the replacement cost is $91 and the market value without taking the normal profit margin is $36 that is lower than the replacement cost so we do not considered the normal profit margin in the computation part

    This same method is applied for the product 3 as well
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