Case Number 07 Lower of cost or market is a conservative approach to valuing and reporting inventory. Normally, ending inventory is stated at historical cost. However, there are times when the original cost of the ending inventory is greater than the net realizable value, and thus the inventory has lost value. If the inventory has decreased in vahie below historical cost, then its carrying value is reduced and reported on the balance sheet. Rembrandt Company accountant is evaluating the ending inventory by the end of the year which is incomplete and categorized as work in progress. He has gathered following information related to inventory which will help in valuating the inventory based on Lower of the cost or market value. Item No Quantity 1220 1233 1410 1439 1500 1522 1573 1626 1722 1856 1936 2155 1300 1000 800 3000 200 400 4000 1000 230 222 5000 700 780 677 Cost per unit $3.20 $2.70 $4.50 $3.60 $2.25 $3.00 $1.80 $4.70 $5.50 $6.60 $4.55 $6.55 $7.88 $9.22 $3.33 $4.44 $8.83 $9.93 $7.55 $6.55 Cost to replace $3.00 $2.30 $3.70 $3.10 $2.00 $2.70 $1.60 $5.20 $5.00 $6.10 $4.00 $5.90 $7.00 $8.50 $3.00 $4.10 $8.20 $9.20 $7.10 $5.00 Est selling Price $4.50 $3.50 $5.00 $3.20 $3.25 $3.80 $2.50 $6.00 $8.00 $7.50 $5.90 $8.50 $9.55 $11.0 $6.00 $5.80 $12.0 $13.0 $10.0 $8.00 Cost of completion $0.35 $0.50 $0.40 $0.25 $0.80 $0.40 $0.75 $0.50 $0.44 $0.33 $0.22 $0.23 $0.44 $0.22 $0.50 $0.22 $0.45 $0.35 $0.55 $0.25 Normal Profit $1.25 $0.50 $1.00 $0.90 $0.60 $0.50 $0.50 $1.00 $1.22 $1.40 $0.60 $0.45 $1.20 $1.90 $0.45 $0.90 $0.65 $0.75 $0.90 $1.20 2222 2456 2555 2600 2777 2884 5000 3300 400 780 566 9000 2900 3011 Requirement (a) Determine the inventory as of Dec 31, 2014, by the lower of the cost and market value applying this method directly to each items. (6) Determine the inventory by the lower of the cost and market value applying the total of the inventory? () Relative sales method can also be used to valuate inventory by the end of month. (d) Discuss in which situation this method can be adopted by the companies? You must support your answer with logical