DT Corporation, a manufacturer of Mexican foods, contracted in 2007 to purchase 1,000 pounds of a spice mixture at $5.00 per pound, delivery to be made in spring of 2008.By 12/31/07, the price per pound of the spice mixture had dropped to $4.60 per pound.

Question

Quizplus · Accepted Answer

DT Corporation should recognize a loss of $400 in 2007 because the price of the spice mixture dropped from $5.00 to $4.60 per pound, resulting in a loss of $0.40 per pound for the 1,000 pounds contracted.

DT Corporation, a Manufacturer of Mexican Foods, Contracted in 2007