Smith Distributors, Inc., supplies ice cream shops with various toppings for making sundaes. On November 17, 2013, a fire resulted in the loss of all of the toppings stored in one section of the warehouse. The company must provide its insurance company with an estimate of the amount of inventory lost. The following information is available from the company's accounting records:

Smith Distributors, Inc., supplies ice cream shops with various toppings for making sundaes. On November 17, 2013, a fire resulted in the loss of all of the toppings stored in one section of the warehouse. The company must provide its insurance company with an estimate of the amount of inventory lost. The following information is available from the company's accounting records:

	Fruit Toppings			Marshmallow Toppings			Chocolate Toppings
Inventory, January 1, 2013	$	10,000		$	6,000		$	2,000
Net purchases through Nov. 17		100,000			26,000			11,000
Net sales through Nov. 17		150,000			45,000			19,000
Historical gross profit ratio		35	%		40	%		40	%

Required:
1.	Calculate the estimated cost of each of the toppings lost in the fire.

Campbell Corporation uses the retail method to value its inventory. The following information is available for the year 2013:

Campbell Corporation uses the retail method to value its inventory. The following information is available for the year 2013:

	Cost			Retail
Merchandise inventory, January 1, 2013	$	190,000		$	280,000
Purchases		600,000			840,000
Freight-in		8,000
Net markups					20,000
Net markdowns					4,000
Net sales					800,000

Required:

Determine the December 31, 2013, inventory that approximates average cost, lower of cost or market.   Explanation:   Cost-to-retail percentage: $798,000  = 70% $1,140,000

San Lorenzo General Store uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the month of October 2013:

San Lorenzo General Store uses a periodic inventory system and the retail inventory method to estimate ending inventory and cost of goods sold. The following data are available for the month of October 2013:

	Cost			Retail
Beginning inventory	$	35,000		$	50,000
Net purchases		19,120			31,600
Net markups					1,200
Net markdowns					800
Net sales					32,000

Required:

Calculate the table to estimate the average cost of ending inventory and cost of goods sold for October. Do not approximate LCM.   Explanation: Cost-to-retail percentage $54120  66% $82,000 Estimated ending inventory at cost = 66% × $50,000 = $33,000

Royal Gorge Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of October was $58,500. The following information for the month of November was available from company records:

Royal Gorge Company uses the gross profit method to estimate ending inventory and cost of goods sold when preparing monthly financial statements required by its bank. Inventory on hand at the end of October was $58,500. The following information for the month of November was available from company records:

Purchases	$	110,000
Freight-in		3,000
Sales		180,000
Sales returns		5,000
Purchases returns		4,000

In addition, the controller is aware of $8,000 of inventory that was stolen during November from one of the company's warehouses.

Explanation:
 1.

Net purchases ($110,000 – 4,000) = $106,000

Net sales ($180,000 – 5,000) = $175,000

Estimated gross profit of 40% = $70,000

2.

Gross profit as a % of cost ÷ (1 + Gross profit as a % of cost) = Gross profit as a % of sales.

100% ÷ 200% = 50%

   

Net purchases ($110,000 – 4,000) = $106,000

Net sales ($180,000 – 5,000) = $175,000

Estimated gross profit of 50% = $87,500

Herman Company has three products in its ending inventory. Specific per unit data for each of the products are as follows:

Herman Company has three products in its ending inventory. Specific per unit data for each of the products are as follows:

	Product 1			Product 2			Product 3
Cost	$	20		$	90		$	50
Replacement cost		18			85			40
Selling price		40			120			70
Disposal costs		6			40			10
Normal profit margin		5			30			12

Required:

What unit values should Herman use for each of its products when applying the LCM rule to ending inventory assuming it prepares financial statements according to International Financial Reporting Standards?   Explanation: According to IFRS, inventory is valued at the lower of cost and net realizable value. Inventory valuation for the three products would be as follows: Product NRV Cost Lower of Cost or Market 1 $ 34   $ 20   $ 20   2   80     90     80   3   60     50     50   Product 3 would be valued at $50 under IFRS, but $48 according to U.S. GAAP.  The inventory values of the other two products would be the same under U.S. and the international standard.

Herman Company has three products in its ending inventory. Specific per unit data for each of the products are as follows:

Herman Company has three products in its ending inventory. Specific per unit data for each of the products are as follows:

	Product 1			Product 2			Product 3
Cost	$	20		$	90		$	50
Replacement cost		18			85			40
Selling price		40			120			70
Disposal costs		6			40			10
Normal profit margin		5			30			12

Required:

What unit values should Herman use for each of its products when applying the LCM rule to ending inventory?   Explanation: NRV = Selling price less disposal costs. NRV − NP = NRV less normal profit margin. Designated Market Value = [Middle value of (RC), (NRV) & (NRV − NP)] Per Unit Inventory Value = [Lower of (Designated Market Value) and (Cost)]