Data related to the inventories of Mountain Ski Equipment and Supplies is presented below: Skis Boots Apparel Supplies Selling price $ 187,000 $ 157,000 $ 127,000 $ 67,000 Cost 131,500 136,500 93,500 51,500 Replacement cost 101,000 137,000 117,000 57,000 Sales commission 15 % 15 % 15 % 15 % Normal gross profit ratio 25 % 25 % 20 % 20 % In applying the lower of cost or market rule, the inventory of skis would be valued at:

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abdulmajeedabiodunac abdulmajeedabiodunac · Answer 1 · 2020-04-25T13:08:05+02:00

Answer:

The multiple choices are:

A) $135,000

B) $133,000

C) $130,000

D) $101,000

Option D,$101,000

Explanation:

The lower of cost or market rule implies that the closing inventory should be valued at lower of cost price or the marketing inclined values.

The market-inclined values are replacement or net realizable value.

Note that net realizable value is the estimated selling price less cost to complete the production and cost to sell(commission).

I have prepared a comparison table between the replacement cost,NRV and cost in the attached.

It is clear from the attached that skis would be valued at replacement cost of $101,000