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28 November, 14:51

Lexington Company sells product 1976NLC for $20 per unit. The cost of one unit of 1976NLC is $18, and the replacement cost is $17. The estimated cost to dispose of a unit is $4, and the normal profit is 40% of selling price. At what amount per unit should product 1976NLC be reported, applying lower-of-cost-or-market

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  1. 28 November, 15:26
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    The answer is $16

    Explanation:

    Solution

    Given that:

    Now

    Market = Present replacement cost

    The Upper Limit of Market = Net Realizable value = Estimated Selling Price - Cost of Completion and Disposal

    The Net Realizable Value = $20 - $4 = $16

    Thus

    The Upper Limit of Market = Net Realizable value = $16

    Market = Present replacement cost = $17

    So,

    Lower Limit of Market = Net realizable value - normal profit margin

    Lower Limit of Market = 16 (40% of 20)

    = 16-8

    =8

    Thus

    If the Present replacement cost is greater or higher than the selling, then the selling amount is the market amount

    Therefore, the product should be reported at $16
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