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Chapter 9: Question 6BE (page 475)

Bell, Inc. buys 1,000 computer game CDs from a distributor who is discontinuing those games. The purchase price for the lot is \(8,000. Bell will group the CDs into three price categories for resale, as indicated below. Group No. of CDs Price per CD 1 100 \) 5 2 800 10 3 100 15 Determine the cost per CD for each group, using the relative sales value method

Short Answer

Expert verified

The cost per CD for Group 1 equals $4, Group 2 equals $8,and Group 3 equals$12.

Step by step solution

01

Definition of relative sales value method

Under the relative sales value method, the cost of the inventories purchased in lump-sum purchases is allocated based on relative sales value.

02

Calculation of cost per CD in each lot

The cost per CD is calculated as follows:

Group

Number of CDs

Sales Price Per CD

Total Sales Price

Relative Sales Price

Total Cost

Cost Allocated to Group

Cost Per Lot

1

100

$5

$500

5/100

$8,000

$400

$4

2

800

10

$8,000

80/100

8,000

6,400

8

3

100

15

$1,500

15/100

8,000

1,200

12

Total

$10,000

$8,000

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Most popular questions from this chapter

Assume that Darcy Industries had the following inventory values. Inventory cost (on December 31, 2017) \(1,500 Inventory market (on December 31, 2017) \)1,350 Inventory net realizable value (on December 31, 2017) \(1,320 Under IFRS, what is the inventory carrying value on December 31, 2017? (a) \)1,500. (b) \(1,570. (c) \)1,560. (d) $1,320

Gheorghe Moresan Lumber Company handles three principal lines of merchandise with these varying rates of gross profit on cost. Lumber 25% Millwork 30% Hardware and fittings 40% On August 18, a fire destroyed the office, lumber shed, and a considerable portion of the lumber stacked in the yard. To file a report of loss for insurance purposes, the company must know what the inventories were immediately preceding the fire. No detail or perpetual inventory records of any kind were maintained. The only pertinent information you are able to obtain are the following facts from the general ledger, which was kept in a fireproof vault and thus escaped destruction. Lumber Millwork Hardware Inventory, Jan. 1, 2017 \( 250,000 \) 90,000 $ 45,000 Purchases to Aug. 18, 2017 1,500,000 375,000 160,000 Sales revenue to Aug. 18, 2017 2,080,000 533,000 210,000 Exercises 479 480 Chapter 9 Inventories: Additional Valuation Issues Instructions Submit your estimate of the inventory amounts immediately preceding the fire.

(a) Determine the ending inventory under the conventional retail method for the furniture department of Mayron Department Stores from the following data. Cost Retail Inventory, Jan. 1 \( 149,000 \) 283,500 Purchases 1,400,000 2,160,000 Freight-in 70,000 Markups, net 92,000 Markdowns, net 48,000 Sales revenue 2,175,000 (b) If the results of a physical inventory indicated an inventory at retail of $295,000, what inferences would you draw?

Question:Where there is evidence that the utility of inventory goods, as part of their disposal in the ordinary course of business, will be less than cost, what is the proper accounting treatment?

Dover Company began operations in 2017 and determined its ending inventory at cost and at LCNRV at December 31, 2017, and December 31, 2018. This information is presented below. Cost Net Realizable Value 12/31/17 \(346,000 \)322,000 12/31/18 410,000 390,000 Instructions (a) Prepare the journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at LCNRV and a perpetual inventory system using the cost-of-goods-sold method. (b) Prepare journal entries required at December 31, 2017, and December 31, 2018, assuming inventory is recorded at LCNRV and a perpetual system using the loss method. (c) Which of the two methods above provides the higher net income in each year?
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