A company has the following per unit original costs and replacement costs for its inventory: Part A: 10 units with a cost of $3 and replacement cost of $2.50.
Part B: 40 units with a cost of $9 and replacement cost of $9.50.
Part C: 75 units with a cost of $8 and replacement cost of $7.50.
Under the lower of cost or market method,the total value of this company's ending inventory must be reported as:
A)$990.00.
B)$947.50.
C)$967.50 or $947.50,depending upon whether LCM is applied to individual items or the inventory as a whole.
D)$967.50.
E)$990.00 or $947.50,depending upon whether LCM is applied to individual items or to the inventory as a whole.

Question

Quizplus · Accepted Answer

Under the lower of cost or market method, the inventory value is reported as the lower of the original cost or replacement cost.

For Part A:
The lower of cost or market is $2.50, since the replacement cost is lower than the original cost. Therefore, the value of Part A is 10 x $2.50 = $25.

For Part B:
The market cost is $9.50, which is higher than the original cost of $9. Therefore, the value of Part B is 40 x $9 = $360.

For Part C:
The lower of cost or market is $7.50, since the replacement cost is lower than the original cost. Therefore, the value of Part C is 75 x $7.50 = $562.50.

Total value of inventory = $25 + $360 + $562.50 = $947.50.

Therefore, the correct answer is C) $967.50 or $947.50, depending upon whether LCM is applied to individual items or the inventory as a whole.

A Company Has the Following Per Unit Original Costs and Replacement