Wangerin Company follows the practice of pricing its inventory at the lower

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Wangerin Company follows the practice of pricing its inventory at the lower�of�cost�or�market, on an individual-item basis.

Item No. Quantity Cost per Unit Cost to Replace Estimated Selling Price Cost of Completion and Disposal Normal Profit
01320 1,2000 $3.20000 $3.00000 $4.50000000 $0.3500000000 $1.25000
01333 9000 2.70000 2.30000 3.50000000 0.5000000000 0.50000
01426 8000 4.50000 3.70000 5.00000000 0.4000000000 1.00000
01437 1,0000 3.60000 3.10000 3.20000000 0.2500000000 0.90000
01510 7000 2.25000 2.00000 3.25000000 0.8000000000 0.60000
01522 5000 3.00000 2.70000 3.80000000 0.4000000000 0.50000
01573 3,0000 1.80000 1.60000 2.50000000 0.7500000000 0.50000
01626 1,0000 4.70000 5.20000 6.00000000 0.5000000000 1.00000
Instructions
From the information above, determine the amount of Wangerin Company inventory.

The Correct Answer and Explanation is :

To determine the amount of Wangerin Company’s inventory based on the “lower of cost or market” method, we need to follow a series of steps for each item in the list. Here’s the breakdown:

Step 1: Compare Cost and Market

For each item, we compare the cost per unit with the market value, where market value is defined as the replacement cost. However, if the replacement cost is lower than the net realizable value (which is the estimated selling price minus the cost of completion and disposal), we need to use the lower of these values as the market value.

Step 2: Calculate the “Lower of Cost or Market”

The formula is:

  • Lower of Cost or Market = Min(Cost per Unit, Market Value)

The market value is typically determined as:

  • Market Value = Min(Replacement Cost, Estimated Selling Price – Cost of Completion and Disposal)

Step 3: Multiply by Quantity

Once the lower of cost or market has been determined for each item, we multiply this by the quantity on hand to find the total value of each item in the inventory.

Step 4: Sum the Results

The total inventory value is the sum of the values for all items.

Let’s go through each item and calculate the lower of cost or market, and then determine the total value of inventory.

Breakdown of Each Item:

  1. Item 01320:
  • Cost per Unit: $3.20
  • Replacement Cost: $3.00
  • Estimated Selling Price: $4.50
  • Cost of Completion and Disposal: $0.35
  • Net Realizable Value (NRV) = $4.50 – $0.35 = $4.15
  • Market Value = Min($3.00, $4.15) = $3.00
  • Lower of Cost or Market = Min($3.20, $3.00) = $3.00
  • Total Value = 1,200 × $3.00 = $3,600
  1. Item 01333:
  • Cost per Unit: $2.70
  • Replacement Cost: $2.30
  • Estimated Selling Price: $3.50
  • Cost of Completion and Disposal: $0.50
  • NRV = $3.50 – $0.50 = $3.00
  • Market Value = Min($2.30, $3.00) = $2.30
  • Lower of Cost or Market = Min($2.70, $2.30) = $2.30
  • Total Value = 900 × $2.30 = $2,070
  1. Item 01426:
  • Cost per Unit: $4.50
  • Replacement Cost: $3.70
  • Estimated Selling Price: $5.00
  • Cost of Completion and Disposal: $0.40
  • NRV = $5.00 – $0.40 = $4.60
  • Market Value = Min($3.70, $4.60) = $3.70
  • Lower of Cost or Market = Min($4.50, $3.70) = $3.70
  • Total Value = 8,000 × $3.70 = $29,600
  1. Item 01437:
  • Cost per Unit: $3.60
  • Replacement Cost: $3.10
  • Estimated Selling Price: $3.20
  • Cost of Completion and Disposal: $0.25
  • NRV = $3.20 – $0.25 = $2.95
  • Market Value = Min($3.10, $2.95) = $2.95
  • Lower of Cost or Market = Min($3.60, $2.95) = $2.95
  • Total Value = 1,000 × $2.95 = $2,950
  1. Item 01510:
  • Cost per Unit: $2.25
  • Replacement Cost: $2.00
  • Estimated Selling Price: $3.25
  • Cost of Completion and Disposal: $0.80
  • NRV = $3.25 – $0.80 = $2.45
  • Market Value = Min($2.00, $2.45) = $2.00
  • Lower of Cost or Market = Min($2.25, $2.00) = $2.00
  • Total Value = 7,000 × $2.00 = $14,000
  1. Item 01522:
  • Cost per Unit: $3.00
  • Replacement Cost: $2.70
  • Estimated Selling Price: $3.80
  • Cost of Completion and Disposal: $0.40
  • NRV = $3.80 – $0.40 = $3.40
  • Market Value = Min($2.70, $3.40) = $2.70
  • Lower of Cost or Market = Min($3.00, $2.70) = $2.70
  • Total Value = 5,000 × $2.70 = $13,500
  1. Item 01573:
  • Cost per Unit: $1.80
  • Replacement Cost: $1.60
  • Estimated Selling Price: $2.50
  • Cost of Completion and Disposal: $0.75
  • NRV = $2.50 – $0.75 = $1.75
  • Market Value = Min($1.60, $1.75) = $1.60
  • Lower of Cost or Market = Min($1.80, $1.60) = $1.60
  • Total Value = 3,000 × $1.60 = $4,800
  1. Item 01626:
  • Cost per Unit: $4.70
  • Replacement Cost: $5.20
  • Estimated Selling Price: $6.00
  • Cost of Completion and Disposal: $0.50
  • NRV = $6.00 – $0.50 = $5.50
  • Market Value = Min($5.20, $5.50) = $5.20
  • Lower of Cost or Market = Min($4.70, $5.20) = $4.70
  • Total Value = 1,000 × $4.70 = $4,700

Total Inventory Value:

Now we sum up the total values for each item:

  • Total Inventory = $3,600 + $2,070 + $29,600 + $2,950 + $14,000 + $13,500 + $4,800 + $4,700 = $75,720

Thus, the total inventory value for Wangerin Company is $75,720.

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