Never Company developed the following information about its inventories in applying the lower-of-cost-or-market (LCM) basis in valuing inventories: If Never applies the LCM basis, the value of the inventory reported on the balance sheet would be
A) $350,000.
B) $342,000.
C) $346,000.
D) $362,000.

Question

Never Company developed the following information about its inventories in applying the lower-of-cost-or-market (LCM) basis in valuing inventories:  If Never applies the LCM basis, the value of the inventory reported on the balance sheet would be
A) $350,000. 
B) $342,000. 
C) $346,000. 
D) $362,000.

Quizplus · Accepted Answer

To determine the value of inventory using the LCM basis, the cost comparison must be made between the original cost and the replacement cost. The replacement cost is the cost to replace the inventory at the balance sheet date.

From the provided table, the original cost of the inventory is $360,000. The market cost of each type of inventory is also provided, and the replacement cost is whichever is lower between the original cost and the market cost.

For Type A inventory, the market cost is $30 per unit, which is lower than the original cost of $35 per unit. For Type B inventory, the market cost is $40 per unit, which is lower than the original cost of $45 per unit. However, for Type C inventory, the original cost of $20 per unit is lower than the market cost of $25 per unit.

Therefore, the inventory should be valued at $350,000 ($180,000 for Type A inventory at the market cost of $30 per unit, $140,000 for Type B inventory at the market cost of $40 per unit, and $30,000 for Type C inventory at the original cost of $20 per unit).

Thus, the answer is C, $346,000.

Never Company Developed the Following Information About Its Inventories in Applying