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This is the example given in Ninja Notes. Calculate each of these and the number in the middle is Market and used to compare vs. Cost Example: 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
So because the cost is 50, is 50 the answer, since it is the “lower of cost or market?” Also, why is 60 the market price? Shouldn’t 60 be the floor?
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