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linda_us
linda_us, Master's Degree
Category: Business and Finance Homework
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Experience:  A tutor for Business, Finance, Accounts and other related topics.
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10. Lexington Company sells product 1976NLC for $50 per unit.

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10. Lexington Company sells product 1976NLC for $50 per unit. The cost of one unit of 1976NLC is $45, and the replacement cost is $43. The estimated cost to dispose of a unit is $10, and the normal profit is 40%. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market?
A) $20.
B) $45.
C) $40.
D) $43.
HiCustomer

The answer is C) $40.

Regards

Linda
linda_us and 2 other Business and Finance Homework Specialists are ready to help you
Customer: replied 5 years ago.
Hi Linda,
Thank you for your help. I appreciate the answer, but can you explain how to approach this question? I'd like to understand how you arrived at $40. I got this question wrong on a recent exam and I'm having trouble understanding how to approach these types of questions in the future.

Thanks again,

-Matt
NRV (Net Rel Value) = 50 - 10 = $40 (Upper Limit)
RC (Replacement Cost) = 43
NRV - Normal Profit = 40 - (50 x 40%) = 20 (Lower Limit)

So the market value from above would be $40 and the cost is 45. So the answer is $40.

Regards

Linda