Inventory Valuation at Other Than Cost. In some instances accounting principles require a departure from valuing inventory exclusively at cost.
Required: (1) The proper inventory price per unit for these cases:
2 Case
3
4
5
Cost …………………………….
$2.00
$2.00
$2.00
$2.00
$2.00
Net realizable value* ………………..
1.30
2.05
1.80
2.40
1.90
Net realizable value less normal profit** …
1.10
1.85
1.60
2.20
1.70
Market (replacement cost) ……………
1.20
2.10
1.85
2.15
1.60
– 1 –
*Market is not to exceed this amount (upper limit of market).
**Market is not to be less than this amount (lower limit of market).
(2) The proper price per unit, assuming that the item in Case 5 is also in stock at the end of the next fiscal period and that the four values are $2, $1.90,
$1. 70, and $2.05, respectively.
(Continued)
(3) Normally, inventory amounts include the costs of Freight-In. Under certain circumstances, however, these costs are excluded from the determination of inventory cost.
(a) The circumstances under which this exclusion might be practiced with comments on the propriety of the exclusions.
(b) Without discussion, other materials-related costs that might similarly be excluded from inventory cost.