lower of cost or market and gross profit relationship See Lower of Cost or Market1719.docxsee attached file

Gross Profit Relationships

The following gross profit data are taken from Eckhardt Company's financial records:

Required: If required, round percentages to one decimal place.

1. If it is known that volume declined 5% from 2013 to 2014, by how much did selling prices change?- Select your answer -IncreasedDecreasedItem 1by%
2. If it is known that volume declined 5% from 2013 to 2014, by how much did costs change?- Select your answer -IncreasedDecreasedItem 3by%
3. If selling prices increased 4% from 2013 to 2014, what effect would this factor alone have on gross profit?- Select your answer -IncreasedDecreasedItem 5by $
4. If costs increased by 7% from 2013 to 2014, what effect would this factor have on gross profit?- Select your answer -IncreasedDecreasedItem 7by $

1.	What is the correct inventory value in each of the preceding situations if Tuell uses U.S. GAAP? If required, round your answers to the nearest cent.

Case	Inventory value
1	$
2	$
3	$
4	$
5	$

2.	What is the correct inventory value in each of the preceding situations if Tuell uses IFRS? If required, round your answers to the nearest cent.

Case	Inventory value
1	$
2	$
3	$
4	$
5	$

Lower of Cost or Market The following information for Tuell Company is available: Required: 1. What is the correct inventory value in each of the preceding situations if Tuell uses U.S. GAAP? If required, round your answers to the nearest cent. Case Inventory value 1 2 3 4 5 $ $ $ $ $ 2. What is the correct inventory value in each of the preceding situations if Tuell uses IFRS? If required, round your answers to the nearest cent. Case Inventory value 1 2 3 4 5 $ $ $ $ $ Gross Profit Relationships The following gross profit data are taken from Eckhardt Company's financial records: Required: If required, round percentages to one decimal place. 1. If it is known that volume declined 5% from 2013 to 2014, by how much did selling prices change? by % 2. If it is known that volume declined 5% from 2013 to 2014, by how much did costs change? by % 3. If selling prices increased 4% from 2013 to 2014, what effect would this factor alone have on gross profit? by $ 4. by $ If costs increased by 7% from 2013 to 2014, what effect would this factor have on gross profit? Sales cost of goods sold Gross Profit 1 Let the sales volume for 2013 be So, the sales volume for 2014 will be Selling price for 2013 will be (Sales/Volume) Selling price for 2014 Change in selling price Percentage change in selling price (Change in Selling price/selling price of 2013) * 100 Increase in selling price during 2014 2 Let the sales volume for 2013 be So, the sales volume for 2014 will be Cost of goods sold for 2013 will be (COGS/Volume) COGS for 2014 Change in COGS Percentage change in COGS (Change in COGS/COGS of 2013) * 100 Percentage change in COGS 2013 300,000 (200,000) 100,000 100 units 100-5% = 95 units $3,000.00 $3,115.79 $115.79 3.86% 3.86% 100 units 100-5% = 95 units $2,000.00 $2,140.00 $140.00 7.00% Increased by 7% 3 Let the selling price per unit for 2013 be $100 So, the selling price for 2014 will be 100+4% = $104 Number of units sold for 2013 (Sales/Selling price per unit) Number of units sold for 2014 (Sales/Selling price per unit) 3,000 2,846 Cost of goods sold per unit (COGS/Number of units sold) 2013 Cost of goods sold per unit (COGS/Number of units sold) 2014 $71.43 Gross Profit per unit 2013 Gross Profit per unit 2014 $33.33 $32.57 Percentage change in Gross Profit Percentage change in Gross Profit $66.67 -2.29% Decreased by 2.29% 4 Let the costs for 2013 per unit be $100 hence, the cost for 2014 will be $107 Number of units sold for 2013 (Cost of goods sold/cost per unit) Number of units sold for 2014 (cost of goods sold/cost price per unit) Selling price per unit (Sales/Number of units) 2013 Selling price per unit (Sales/Number of units) 2014 2,000 1,900 $150.00 $155.79 Gross Profit per unit 2013 Gross Profit per unit 2014 $50.00 $48.79 Percentage decrease in gross profit -2.42% 2014 296,000 (203,300) 92,700 US GAAP Cost Net realizable value Net realisable value less normal profit Replacement cost 1 5.00 5.10 4.80 5.30 2 5.00 5.50 5.30 5.20 3 5.00 4.80 4.70 4.60 4 5.00 4.20 4.00 4.10 The general rule is that inventory value is lower of cost or market rule wherein the relevant value is lower of cost or replacement cost, with the replacement cost being no higher than NRV and no lower than NRV less the normal profit For Product 1 Replacement cost Net realizable value Cost Net realisable value less normal profit 5.30 5.10 5.00 4.80 For Product 2 Net realizable value Net realisable value less normal profit Replacement cost Cost 5.50 5.30 5.20 5.00 For Product 3 Cost Net realizable value Net realisable value less normal profit Replacement cost 5.00 4.80 4.70 4.60 Product 4 Cost Net realizable value Replacement cost Net realisable value less normal profit 5.00 4.20 4.10 4.00 Product 5 Cost Replacement cost Net realizable value Net realisable value less normal profit 5.00 4.80 4.70 4.60 IFRS Replacement cost is not considered For Product 1 Net realizable value Cost Net realisable value less normal profit 5.10 5.00 4.80 For Product 2 Net realizable value Net realisable value less normal profit Cost 5.50 5.30 5.00 For Product 3 Cost Net realizable value Net realisable value less normal profit 5.00 4.80 4.70 Product 4 Cost Net realizable value Net realisable value less normal profit 5.00 4.20 4.00 Product 5 Cost Net realizable value Net realisable value less normal profit 5.00 4.70 4.60 5 5.00 4.70 4.60 4.80