The Eserine Wood Corporation manufactures desks. Most of the company?s desks are standard models that are sold at catalogue prices. At December 31, 2020, the following finished desks appear in the company?s inventory:

The 2020 catalogue was in effect through November 2020, and the 2021 catalogue is effective as of December 1, 2020. All catalogue prices are net of the usual discounts. Generally, the company tries to obtain a 20% gross margin on the selling price and it has usually been successful in achieving this.

Instructions

a. Assume that the company has adopted a lower of FIFO cost and net realizable value approach for the valuation of inventories and applies it on an individual inventory item basis. At what total inventory value will the desks appear on the company?s December 31, 2020 SFP?

b. Explain the rationale for using the lower of cost and net realizable rule for inventories.

c. Explain the impact if inventory was valued at lower of cost and net realizable value on a total basis.

Transcribed Image Text:

Finished Desks 2020 catalogue selling price FIFO cost per inventory list, Dec. 31, 2020 Estimated current cost to manufacture (at Dec. 31, 2020, and early 2021) Sales commissions and estimated other costs of disposal 2021 catalogue selling price Quantity on hand Type A $460 410 Type C Type D $1,040 960 Type B $890 $490 450 830 1,000 460 440 790 40 575 15 65 650 95 130 1,420 110 780 117 113