A company sells four products: I, II, III, and IV. The company values all inventories using the lower-of-cost-or-market procedure. The company has consistently experienced a profit margin of 20 percent of sales and expects this rate to hold for the future. Additional information, shown below, is available for the most recent year as of December 31.

See information regarding the four products above. Using the lower-of-cost-or-market procedure, what is the reported inventory value at December 31 for one unit of Product IV?

Question

A company sells four products: I, II, III, and IV. The company values all inventories using the lower-of-cost-or-market procedure. The company has consistently experienced a profit margin of 20 percent of sales and expects this rate to hold for the future. Additional information, shown below, is available for the most recent year as of December 31.

See information regarding the four products above. Using the lower-of-cost-or-market procedure, what is the reported inventory value at December 31 for one unit of Product IV?

Quizplus · Accepted Answer

The lower-of-cost-or-market procedure requires that inventory be valued at the lower of its historical cost or current market value. 
Product IV has a historical cost of $70 per unit and a current market value of $80 per unit. 
Since the market value ($80) is higher than the historical cost ($70), the inventory value for one unit of Product IV should be reported at the historical cost of $70.

A Company Sells Four Products: I, II, III, and IV