Class notes
Inventory
- Course
- MOS 3360
- Institution
- University Of Western Ontario (UWO )
Inventory example, Percentage sales method, Net realizable value.
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EXERCISE 8.5 (Handout)During 2023, Buildit Furniture Limited purchased a railway carload of wicker chairs. The manufacturer of
the chairs sold them to Build it for a lump sum of $59,850, because it was discontinuing manufacturing
operations and wanted to dispose of its entire stock. Three types of chairs are included in the carload.
The three types and the estimated selling price for each are as follows :
TuQg Number of Chairs Estimated Selling Price per Chair
Lounge chairs 400 $95
Straight chairs 700 55
Armchairs 300 85
Build it estimates that the costs to sell this inventory would be $2 per chair. During 2023, Buildit sells 350
lounge chairs, 210 armchairs, and 120 straight chairs, all at the same prices as estimated. At December
31, 2023, the remaining chairs were put on sale: the lounge chairs at 25% off the regular price, the
armchairs at 30% off, and the straight chairs at 40% off. All were expected to be sold at these prices.
Instructions
a. Rounding percentages to one decimal place and all other amounts to two decimal places, what is the
total cost of the chairs remaining in inventory at the end of 2023, using the relative sales value
method?
b. What is the net realizable value of the chairs remaining in inventory?
c. What is the appropriate inventory value to be reported on the December 31, 2023 statement of
financial position, assuming the lower of cost and NRV is applied on an individual item basis?
(a) Basket Purchase
Step 1: Determine allocated cost.
Unit Total %of Total Per
No. of Purchase
Selling Sales Total Allocated Unit
Chairs price
Price Value Value Cost Cost
Lounge chairs t q~ 37..2~ -;.
S"18So
222 q l(,II!,
2-,
ss -73
Straight chairs 16.) ss ~l<56u 37•'Jbr/.
i
s1gs 0 2- 2s~ .3,,s ~2-30
Armchairs ~U) lS 2SSou 2~·/ 5 1 8'$ 0 /'11 &2 · <;, ~1-~7~
Io/ZJo \ol-uDO / '()O'/· $ ?[SO
37·~ ·/- 2..2.~2.. 'f.DS s~ -g,
-si -7•;. 7-- 2-56'3/IS 32 ·2-~
\
l lf q 0 - -<; q.•8&
'2-S ·1,
) tiiSo
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