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7 December, 01:29

Ross Electronics has one product in its ending inventory. Per unit data consist of the following: cost, $32; replacement cost, $30; selling price, $42; selling costs, $8. The normal profit is 20% of selling price. What unit value should Ross use when applying the lower of cost or market (LCM) rule to ending inventory?

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  1. 7 December, 01:47
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    The unit price should be $25.6

    Explanation:

    Net realization value = selling price - selling cost

    = $42 - $8

    = $34

    Profit margin = 20% of selling price

    = 0.2 * $42

    = $8.4

    NRV - profit margin:

    = $34 - $8.4

    = $25.6

    Since we don't have replacement cost in the question. Hence, the market value is lower of (NRV, NRV-Profit) = $25.6

    The unit price should be $25.6
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