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Dear Tutor,
could you please help me with the following question –
Product Quantity Cost Selling Price Selling Costs
A 1,000 $40 $55 $8
B 2,500 $15 $25 $4
C 800 $23 $27 $5At what amount should total inventory be stated in the statement of financial position?
A $95,900
B $103,100
C $95,100
D $105,100The correct answer is C .
However I don’t understand why it is C? my answer is A. Could you please explain it to me?Thank you very much.
Hui
Hi Hui,
Inventory is valued at the lower of cost and NRV, on a line-by-line basis. So you need to look at the three products and work out the NRV of each. So for product A this will be the selling price of $55 less the selling cost of $8, which gives a NRV of $47. On comparison to the cost of $40 we see that the cost is lower. Therefore product A is valued at $40 per unit. We can then multiply this by the number of units at 1,000 and get $40,000.
You then need to follow this method for both product B and C, and add the three valuations together. Try it, and see how you get on.
Thanks
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