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SP 6 Santana Rey of Business Solutions is evaluating her inventory

Price: $6.99


SP 6
Part A
Santana Rey of Business Solutions is evaluating her inventory to determine whether it must be adjusted
based on lower of cost or market rules. Business Solutions has three different types of software in its inventory and the following information is available for each.

Per Unit
Inventory Items Units Cost Market
Office productivity . . . . . . . . 3 $ 76 $ 74
Desktop publishing . . . . . . . . 2 103 100
Accounting . . . . . . . . . . . . . . 3 90 96

Required
1. Compute the lower of cost or market for ending inventory assuming Rey applies the lower of cost or
market rule to inventory as a whole. Must Rey adjust the reported inventory value? Explain.
2. Assume that Rey had instead applied the lower of cost or market rule to each product in inventory.
Under this assumption, must Rey adjust the reported inventory value? Explain.

Part B
Selected accounts and balances for the three months ended March 31, 2012, for Business Solutions follow.

Required
1. Compute inventory turnover and days’ sales in inventory for the three months ended March 31, 2012.
2. Assess the company’s performance if competitors average 15 times for inventory turnover and 25 days for days’ sales in inventory.

January 1 beginning inventory . . . . . . . . . $ 0
Cost of goods sold . . . . . . . . . . . . . . . . . 14,052
March 31 ending inventory . . . . . . . . . . . 704

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