Cullumber's Gift Shop uses a perpetual inventory system and the FIFO cost formula for valuing inventory. The company is now in the process of comparing the cost of its inventory with its net realizable value. The following data are available at Cullumber's Gift Shop's year end, December 31:




Units

Unit Cost

Net Realizable Value per Unit

Clothing

94

$6

$5

Jewellery

69

20

23

Greeting cards

49

1

2

Stuffed toys

50

12

40

Determine the lower of cost and net realizable value of the ending inventory assuming Cullumber's Gift Shop applies LCNRV on individual items.

To determine the lower of cost and net realizable value (LCNRV) for Cullumber's Gift Shop's ending inventory on an individual item basis, we need to compare the unit cost with the net realizable value (NRV) per unit for each type of item. We then use the lower of the two values for each item to calculate the total value of the ending inventory.

### Given Data:
- **Clothing**
  - Units: 94
  - Unit Cost: $6
  - NRV per Unit: $5

- **Jewellery**
  - Units: 69
  - Unit Cost: $20
  - NRV per Unit: $23

- **Greeting Cards**
  - Units: 49
  - Unit Cost: $1
  - NRV per Unit: $2

- **Stuffed Toys**
  - Units: 50
  - Unit Cost: $12
  - NRV per Unit: $40

### Step-by-Step Calculation:
1. **Clothing**:
   - Lower of Cost ($6) and NRV ($5) = $5
   - Total Value for Clothing = 94 units * $5 = $470

2. **Jewellery**:
   - Lower of Cost ($20) and NRV ($23) = $20
   - Total Value for Jewellery = 69 units * $20 = $1380

3. **Greeting Cards**:
   - Lower of Cost ($1) and NRV ($2) = $1
   - Total Value for Greeting Cards = 49 units * $1 = $49

4. **Stuffed Toys**:
   - Lower of Cost ($12) and NRV ($40) = $12
   - Total Value for Stuffed Toys = 50 units * $12 = $600

### Total LCNRV of Ending Inventory:
- Clothing: $470
- Jewellery: $1380
- Greeting Cards: $49
- Stuffed Toys: $600

- **Total LCNRV of Ending Inventory** = $470 + $1380 + $49 + $600 = **$2499**

Therefore, the lower of cost and net realizable value of the ending inventory for Cullumber's Gift Shop is $2499.

Would you like more details or have any questions?

Here are 5 questions you can ask next:
1. How is the net realizable value calculated?
2. Can you explain why the lower of cost and net realizable value rule is used in inventory valuation?
3. What are the potential financial statement impacts of using LCNRV?
4. How would the inventory valuation change if Cullumber's Gift Shop used the average cost method instead of FIFO?
5. Can you provide an example of calculating LCNRV for a different set of inventory items?

**Tip:** Regularly review the NRV of inventory items, especially for items that may become obsolete or slow-moving, to ensure that the inventory is valued accurately.

Learn how to determine the lower of cost and net realizable value (LCNRV) for inventory items using FIFO method. This problem covers the valuation of clothing, jewellery, greeting cards, and stuffed toys based on unit cost and net realizable value per unit.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation