LCNRV PRACTICE Finished Desks 450480 S900 1050 960 1000 2016

LCNRV PRACTICE Finished Desks $450$480 S900 $1.050 960 1,000 2016 catalog selling price FIFO cost per inventory list at 12/31/16 Estimated current cost to manufacture (at 12/31/16 and early 2017) Sales commission and estimated other costs of disposal 2017 catalog selling price 470 460 450 430 830 610 50 500 130 1,200 60 900 Above are details for Lily\'s Corn & Nuts for Real Vegans (LCNRV) Inc\'s finished goods inventory. LCNRV attempts to maintain 20% gross margin on sales. At December 31, 2016, what should each desk be valued at?

Solution

To earn 20% gross margin on sales is equal to earnings 25% gross margin on cost. Gross margin is sales minus cost of goods sold divided by sales. Thus, to earn 20% on cost or 25% on cost, products should be valued as follows :

A : $ 500 /1.25 = $ 400

B : $ 540/1.25 = $ 432

C : $ 900/1.25 = $ 720

D : $ 1200/1.25 = $ 960