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To determine the value of the inventory for rehab equipment using the lower of cost or market rule, we need to follow a detailed step-by-step process.
### Step-by-Step Solution:
1. Identifying Key Data:
- Selling Price: \[tex]$415 - Cost: \$[/tex]325
- Replacement Cost: \[tex]$310 - Costs to Sell: \$[/tex]52
- Normal Gross Profit Ratio: 30% (0.30)
2. Calculate Normal Profit:
[tex]\[ \text{Normal Profit} = \text{Selling Price} \times \text{Normal Gross Profit Ratio} \][/tex]
[tex]\[ \text{Normal Profit} = 415 \times 0.30 = 124.5 \][/tex]
3. Determine Net Realizable Value (NRV):
[tex]\[ \text{Net Realizable Value} = \text{Selling Price} - \text{Costs to Sell} \][/tex]
[tex]\[ \text{Net Realizable Value} = 415 - 52 = 363 \][/tex]
4. Calculate the Lower Bound:
[tex]\[ \text{Net Realizable Value Minus Normal Profit} = \text{Net Realizable Value} - \text{Normal Profit} \][/tex]
[tex]\[ \text{Net Realizable Value Minus Normal Profit} = 363 - 124.5 = 238.5 \][/tex]
5. Establish the Market Value:
Market value is determined as the middle value among the replacement cost, NRV, and NRV minus normal profit.
[tex]\[ \text{Replacement Cost} = 310 \][/tex]
[tex]\[ \text{Net Realizable Value} = 363 \][/tex]
[tex]\[ \text{NRV Minus Normal Profit} = 238.5 \][/tex]
Thus, we sort these values:
[tex]\[ 238.5, 310, 363 \][/tex]
The middle value here is:
[tex]\[ \text{Market Value} = 310 \][/tex]
6. Choose the Lower of Cost or Market Value:
[tex]\[ \text{Cost} = 325 \][/tex]
[tex]\[ \text{Market Value} = 310 \][/tex]
According to the lower of cost or market rule, the inventory should be valued at the lower of these two figures, which is:
[tex]\[ \text{Inventory Valuation} = 310 \][/tex]
### Conclusion:
Thus, in applying the lower of cost or market rule, the inventory for rehab equipment would be valued at \[tex]$310. Answer: \$[/tex]310 (Option: \$310)
### Step-by-Step Solution:
1. Identifying Key Data:
- Selling Price: \[tex]$415 - Cost: \$[/tex]325
- Replacement Cost: \[tex]$310 - Costs to Sell: \$[/tex]52
- Normal Gross Profit Ratio: 30% (0.30)
2. Calculate Normal Profit:
[tex]\[ \text{Normal Profit} = \text{Selling Price} \times \text{Normal Gross Profit Ratio} \][/tex]
[tex]\[ \text{Normal Profit} = 415 \times 0.30 = 124.5 \][/tex]
3. Determine Net Realizable Value (NRV):
[tex]\[ \text{Net Realizable Value} = \text{Selling Price} - \text{Costs to Sell} \][/tex]
[tex]\[ \text{Net Realizable Value} = 415 - 52 = 363 \][/tex]
4. Calculate the Lower Bound:
[tex]\[ \text{Net Realizable Value Minus Normal Profit} = \text{Net Realizable Value} - \text{Normal Profit} \][/tex]
[tex]\[ \text{Net Realizable Value Minus Normal Profit} = 363 - 124.5 = 238.5 \][/tex]
5. Establish the Market Value:
Market value is determined as the middle value among the replacement cost, NRV, and NRV minus normal profit.
[tex]\[ \text{Replacement Cost} = 310 \][/tex]
[tex]\[ \text{Net Realizable Value} = 363 \][/tex]
[tex]\[ \text{NRV Minus Normal Profit} = 238.5 \][/tex]
Thus, we sort these values:
[tex]\[ 238.5, 310, 363 \][/tex]
The middle value here is:
[tex]\[ \text{Market Value} = 310 \][/tex]
6. Choose the Lower of Cost or Market Value:
[tex]\[ \text{Cost} = 325 \][/tex]
[tex]\[ \text{Market Value} = 310 \][/tex]
According to the lower of cost or market rule, the inventory should be valued at the lower of these two figures, which is:
[tex]\[ \text{Inventory Valuation} = 310 \][/tex]
### Conclusion:
Thus, in applying the lower of cost or market rule, the inventory for rehab equipment would be valued at \[tex]$310. Answer: \$[/tex]310 (Option: \$310)
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