Venus Inc. carries Product A in inventory on December 31 at its unit cost of $22.50. Because of a sharp decline in demand for the product, the selling price is reduced to $24.00 per unit. Venus's normal profit margin on Product A is $4.80, disposal costs are $3.00 per unit, and the replacement cost is $15.90. Under the rule of lower of cost or market, Venus's December 31 inventory of Product A should be valued at a unit cost of

Question

Quizplus · Accepted Answer

According to the lower of cost or market rule, inventory should be valued at the lower of its cost or market value. Market value is determined by comparing the replacement cost to the net realizable value (selling price minus normal profit margin and disposal costs). 
In this case, the replacement cost is $15.90, which is lower than the current unit cost of $22.50. 
To determine the net realizable value, we subtract the normal profit margin ($4.80) and disposal costs ($3.00) from the new selling price ($24.00): 
$24.00 - $4.80 - $3.00 = $16.20 
Since $15.90 is lower than $16.20, we should value the inventory at the replacement cost of $15.90 per unit, making choice B the correct answer.

Venus Inc Carries Product a in Inventory on December 31 at at Its