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  3. stiles corporation uses the lower of cost or market rule...

Question: stiles corporation uses the lower of cost or market rule...

Question details

Stiles Corporation uses the lower of cost or market rule for each of two products in its ending inventory. A profit margin of 30% on the selling price is considered normal for each product. Specific data for each product are as follows:

product A Product B
Historical cost $80 $95
replacement cost $70 $98
estimated cost of disposal $32 $30
estimated selling price $150 $120
  1. Assume that Stiles uses the FIFO inventory method. What is the correct inventory value for each product?
    Product A $   per unit
    Product B $   per unit
  2. Assume that Stiles uses the LIFO inventory method. What is the correct inventory value for each product?
    Product A $   per unit
    Product B $   per unit
  3. For Product A, the use of a “  ” constraint prevents an excessive write-down of inventory. If the   constraint were not imposed, an excessive loss would be recognized in the period of the write-down followed by an excessive profit in future periods. Therefore, the imposition of the   constraint prevents the profit distortion that would occur by an understatement of inventory and overstatement of losses in the current period.

    For Product B, the use of a " " constraint prevents inventory from being valued at an amount that exceeds the amount the company could realize by seliling it.

***** choices for answer 3 is ceiling, Floor, profit.

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