ACCA FR · Chapter 4 · Question 2 of 6
At the year end Avalon Co holds 1,000 units of a product that cost $50 each. The normal selling price is $60 a unit, but each unit needs a modification costing $8 before it can be sold, and a sales commission of 5% of the selling price is payable. At what amount should the inventory be shown?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) $49,000
Explanation
NRV per unit = selling price $60 - modification $8 - commission ($60 x 5% = $3) = $49. NRV is below cost of $50, so inventory is measured at NRV: 1,000 x $49 = $49,000.
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