Herman company has three products in its ending inventory. specific per unit data at the end of the year for each of the products are as follows: product 1 product 2 product 3cost $ 20 $ 90 $ 50replacement cost 18 85 40selling price 40 120 70selling costs 6 40 10normal profit margin 5 30 12required: what unit values should herman use for each of its products when applying the lower of cost or market (lcm) rule to ending inventory

Explanation:

In this question, we apply the lower of cost or market (LCM) rule which is shown below:

For Product 1

The Cost is $20

And, the market value = Selling price - selling cost - normal profit margin

                                     = $40 - $6 - $5

                                     = $29

So, the lower value would be $20

For Product 2

The Cost is $90

And, the market value = Selling price - selling cost

                                     = $120 - $40

                                     = $80

So, the lower value would be $80

For Product 3

The Cost is $50

And, the market value = Selling price - selling cost - normal profit margin

                                     = $70 - $10 - $12

                                     = $48

So, the lower value would be $48

In the product 2, the replacement cost is 85 and the market value without considering the normal profit margin is $80 which is less than the replacement cost that's why we do not take the normal profit margin