Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Lower of Cost or Market Stiles Corporation uses the lower of cost or market rule for each of two products in its ending inventory. A

Lower of Cost or Market

Stiles Corporation uses the lower of cost or market rule for each of two products in its ending inventory. A profit margin of 30% on the selling price is considered normal for each product. Specific data for each product are as follows:

Product A Product B
Historical cost $80 $96
Replacement cost 70 98
Estimated cost of disposal 32 30
Estimated selling price 150 120

Required:

  1. Assume that Stiles uses the FIFO inventory method. What is the correct inventory value for each product?
    Product A $ per unit
    Product B $ per unit
  2. Assume that Stiles uses the LIFO inventory method. What is the correct inventory value for each product?
    Product A $ per unit
    Product B $ per unit
  3. Fill in the blanks using either celling, floor or profit(only choose one)

    For Product A, the use of a ______________________ constraint prevents an excessive write-down of inventory. If the ______________constraint were not imposed, an excessive loss would be recognized in the period of the write-down followed by an excessive profit in future periods. Therefore, the imposition of the _______________constraint prevents the profit distortion that would occur by an understatement of inventory and overstatement of losses in the current period.
  4. For Product B, the use of a " __________________" constraint prevents inventory from being valued at an amount that exceeds the amount the company could realize by seliling it.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Inventory Best Practices

Authors: Steven M. Bragg

2nd Edition

1118000749, 9781118000748

More Books

Students also viewed these Accounting questions

Question

3. Where is the job to be accomplished?

Answered: 1 week ago