Patrick Treadwell Acct 301 Project 4 Case 9-1 Hudson has been dealing with substantial warehouse costs. Hudson should account for these warehouse costs related to inventories by removing them from the cost of inventories. We learn that certain criteria need to be met in order to establish this which includes: cost incurred to bring inventory in a location to sale (Spiceland). Hudson Company uses the lower-of-the-cost-or-market method for the reason that is allows you not to place greater value on the inventory than what can easily be obtained(Accounting). This allows for a more efficient managing of the warehouse in the long run.
Hudson Company now needs to determine which amount method it is determined that the replacement cost needs to be between the net realizable cost and that cost minus the profit. The value to the inventory is that of the replacement cost. In estimating the cost of its ending retail inventories, Hudson need to treat Freight-in costs and Net markups by adding them as a cost before the calculation is done to increase the value of inventory since is part of the cost to retail process. Hudson should take net markdowns and decrease from the price of the inventory for the finale piece in cost-to-retail percentage.
Hudson’s retail inventory method approximate lower of average cost or market due to the decrease in utility from inventory. By using these ideas and steps and companies can ensure the revenues and expenses can be properly matched. Thus allowing the company to make proper business decisions. Spiceland, J. D. , Sepe, J. F. , & Nelson, M. W. (2013). Intermediate Accounting. (7th ed. ). New York, NY: MecGraw-Hill/Irwin. Accounting Coach(2004-2013) Lower of Cost or Market. Retrieved February 28,2013 from http://www. accountingcoach. com/online-accounting-course/27Xpg01. html