Acc 422 E9-1 & E9-12
E9-1 (Lower-of-Cost-or-Market) The inventory of Oheto Company on December 31, 2011, consists of the following items.
Cost Cost to Total Total Lower Cost
Part No. Qty Unit Replace Cost Replace or Replace
110 600 $95 $ 100 $ 57,000 $ 60,000 $ 57,000
111 1,000 60 52 60,000 52,000 52,000
112 500 80 76 40,000 38,000 38,000
113 200 170 180 34,000 36,000 34,000
120 400 205 208 82,000 83,200 82,000
121* 1,600 16 0.50 25,600 800 800
122 300 240 235 72,000 70,500 70,500 Totals $370,600 $340,500 $ 334,300
*Part No. 121 is obsolete and has a realizable value of $0.50 each as scrap.
Instructions
(a) Determine the inventory as of December 31, 2011, by the lower-of-cost-or-market method, applying this method directly to each item. $334,300
(b) Determine the inventory by the lower-of-cost-or-market method, applying the method to the total of the inventory. $340,500
E9-12 (Gross Profit Method) Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May. (a) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of sales. Inventory, May 1 $ 160,000 Purchases (gross) 640,000 Purchase discounts (12,000) Freight-in 30,000 Goods Available (at cost) $ 818,000 Sales $1,000,000 Sales returns (70,000) Net Sales (at selling price) $ 930,000 Less: Gross Profit (25% of $930,000) (232,500) Sales (at cost) 697,500 Approx Inventory, May 31 (at
Cost Cost to Total Total Lower Cost
Part No. Qty Unit Replace Cost Replace or Replace
110 600 $95 $ 100 $ 57,000 $ 60,000 $ 57,000
111 1,000 60 52 60,000 52,000 52,000
112 500 80 76 40,000 38,000 38,000
113 200 170 180 34,000 36,000 34,000
120 400 205 208 82,000 83,200 82,000
121* 1,600 16 0.50 25,600 800 800
122 300 240 235 72,000 70,500 70,500 Totals $370,600 $340,500 $ 334,300
*Part No. 121 is obsolete and has a realizable value of $0.50 each as scrap.
Instructions
(a) Determine the inventory as of December 31, 2011, by the lower-of-cost-or-market method, applying this method directly to each item. $334,300
(b) Determine the inventory by the lower-of-cost-or-market method, applying the method to the total of the inventory. $340,500
E9-12 (Gross Profit Method) Astaire Company uses the gross profit method to estimate inventory for monthly reporting purposes. Presented below is information for the month of May. (a) Compute the estimated inventory at May 31, assuming that the gross profit is 25% of sales. Inventory, May 1 $ 160,000 Purchases (gross) 640,000 Purchase discounts (12,000) Freight-in 30,000 Goods Available (at cost) $ 818,000 Sales $1,000,000 Sales returns (70,000) Net Sales (at selling price) $ 930,000 Less: Gross Profit (25% of $930,000) (232,500) Sales (at cost) 697,500 Approx Inventory, May 31 (at