[Anonymous]

The example below is an example for lower of cost or market. I am just wondering, for normal profit margin, shouldn’t it specify whether it is based on sales or on cost? Cause that would change the floor number.

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Lower of Cost or Market

Cost: $50

Replacement Cost: $55

Selling Price: $75

Selling (including Disposal) Cost: $2.50

Normal Profit Margin: 25%

NRV = $75 – $2.50 = $72.50

Replacement Cost = $55

*****NRV – Normal Profit Margin = $60*****

*****[$72.50 – ($50 Cost x 25% = $12.50)]*****

NRV = $72.50

NRV-Normal Profit Margin = $60 = Market

Replacement Cost = $55

[M.O.D.]

All profit margins are based on sale price. Mark-ups are based on cost.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[Author]

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