Brief Exercise 94 Presented below is information related to

Brief Exercise 9-4

Presented below is information related to Indigo Inc.’s inventory, assuming Indigo uses lower-of-LIFO cost-or-market.

(per unit)

Skis

Boots

Parkas

$269.80

$150.52

$75.26

301.04

205.90

104.73

26.98

11.36

3.55

288.26

149.10

72.42

45.44

41.18

30.18

Determine the following:

(a) The two limits to market value (i.e., the ceiling and the floor) that should be used in the lower-of-cost-or-market computation for skis.

(b) The cost amount that should be used in the lower-of-cost-or-market comparison of boots.

(c) The market amount that should be used to value parkas on the basis of the lower-of-cost-or-market.

Solution

a)ceiling for skis =Selling price -cost to distribute

         = 301.04-26.98

        = $ 274.06

Floor limit : ceiling -normal profit

        = 274.06-45.44

       = $ 228.62

b)cost to use for boots : $150.52

c)Market amount for parkas:

ceiling for parkas : 104.73-3.55=101.18

floor for parkas : 101.18-30.18=71

replacement cost:72.42

Designated market value is a middle of above value : 71 or 72.42or 101.18

                 = $ 72.42