Inventory Valuation: Understanding Expected Selling Price

What is the expected selling price used in determining the lower-of-cost-or-net-realizable value for Sandhill Inc.'s inventory?

A. $5040

B. $4800

C. $6000

D. $5760

Answer:

The expected selling price, calculated using the net realizable value and the selling costs, is $6000. The correct option is C.

Sandhill Inc. uses the lower-of-cost-or-net-realizable value method to value its inventory. In this method, the net realizable value is determined by subtracting the selling costs from the expected selling price. From the information provided, we know that the net realizable value is $4800, and the selling costs are 20% of the expected selling price.

To calculate the expected selling price, we can set up the following equation: Expected Selling Price - 0.20(Expected Selling Price) = $4800. Simplifying this equation, we get 0.80(Expected Selling Price) = $4800. By solving for the Expected Selling Price, we find that it is $6000.

It is crucial for companies like Sandhill Inc. to accurately determine the expected selling price when valuing their inventory to ensure that they reflect the true economic value of their goods. This helps in making informed decisions regarding pricing strategies and inventory management.