Q. 9-7E - Intermediate Accounting (Kieso)

Question

Referring to the inventory data for Sedato Company in E9-3, assume that Sedato follows the practice of pricing its inventory at the lower-of-cost-or-market, on an individual-item basis. Item No. Quantity Cost per Unit Cost to Replace Estimated Selling Price Cost of Completion and Disposal Normal Profi t 1320 1,200 \(3.20 \)3.00 \(4.50 \)0.35 $1.25 1333 900 2.70 2.30 3.50 0.50 0.50 1426 800 4.50 3.70 5.00 0.40 1.00 1437 1,000 3.60 3.10 3.20 0.25 0.90 1510 700 2.25 2.00 3.25 0.80 0.60 1522 500 3.00 2.70 3.80 0.40 0.50 1573 3,000 1.80 1.60 2.50 0.75 0.50 1626 1,000 4.70 5.20 6.00 0.50 1.00 Instructions From the information above, determine the amount of Sedato Company inventory

Step-by-Step Solution

Answer

The inventory value equals $24,110.

Estimation of market value per unit

Market value per unit is shown as follows: 

Item No.	Selling Price	Cost of completion and disposal	Normal profit	NRV (Selling price-Cost of completion and disposal)	NRV less normal profit (NRV -Normal profit)	Cost to replace	Designated Market value
1320	$4.50	$0.35	$1.25	$4.15	$2.90	$3.00	$3.00
1333	3.50	0.50	0.50	3.00	2.50	2.30	2.50
1426	5.00	0.40	1.00	4.60	3.60	3.70	3.70
1437	3.20	0.25	0.90	2.95	2.05	3.10	2.95
1510	3.25	0.80	0.60	2.45	1.85	2.00	2.00
1522	3.80	0.40	0.50	3.40	2.90	2.70	2.90
1573	2.50	0.75	0.50	1.75	1.25	1.60	1.60
1626	6.00	0.50	1.00	5.50	4.50	5.20	5.20

Calculation of Inventory

Inventory value is calculated as follows: 

Item No.	Quantity	Cost per unit	Designated Market value	Lower of cost-or-market	Inventory
1320	1,200	$3.20	$3.00	$3.00	$3,600
1333	900	2.70	2.50	2.50	2,250
1426	800	4.50	3.70	3.70	2,960
1437	1,000	3.60	2.95	2.95	2,950
1510	700	2.25	2.00	2.00	1,400
1522	500	3.00	2.90	2.90	1,450
1573	3,000	1.80	1.60	1.60	4,800
1626	1,000	4.70	5.20	4.70	4,700
Total					$24,110