Karl's Snowshoes usually sells its snowshoes for $140 per unit and allows Karl to earn a 20% profit margin. It has recently come to Karl's attention that the expected selling price has fallen to $70 per unit. Karl's current inventory includes 85 units purchased at $100 per unit. Calculate the value of the inventory at the lower of cost and net realizable value.

Question

Quizplus · Accepted Answer

The net realizable value for the inventory is the expected selling price minus any costs to sell. In this case, Karl purchased the snowshoes for $100 per unit, but the expected selling price has fallen to $70 per unit. To calculate the net realizable value, we must subtract any additional costs Karl will incur in order to sell the inventory. Since no additional costs are given in the problem, we will assume they are negligible.

Therefore, the net realizable value of each snowshoe is $70 - $0 = $70. To find the value of Karl's inventory, we will multiply the net realizable value of each unit by the number of units Karl has in inventory:

$70/unit x 85 units = $5,950

Therefore, the value of Karl's inventory at the lower of cost and net realizable value is $5,950.

Karl's Snowshoes Usually Sells Its Snowshoes for $140 Per Unit