A company normally sells its product for $20 per unit.However,the selling price has fallen to $15 per unit.This company's current FIFO inventory consists of 200 units purchased at $16 per unit.Net realizable value has now fallen to $13 per unit.What is the amount of the lower cost of market adjustment the company must make as a result of this decline in value?
A)$1,000.
B)$1,400.
C)$400.
D)$600.
E)$800.

Question

Quizplus · Accepted Answer

The lower of cost or market (LCM) is the inventory valuation method in which inventory is reported at the lower of its cost or its market value. In this case, the cost of each unit is $16, but the market value has declined to $13 per unit. Therefore, the LCM adjustment is calculated as follows:

LCM adjustment = (FIFO cost - Market value) x Number of units 
LCM adjustment = ($16 - $13) x 200 
LCM adjustment = $3 x 200 
LCM adjustment = $600

Therefore, the amount of the lower cost of market adjustment the company must make as a result of this decline in value is $600, which is option D.

A Company Normally Sells Its Product for $20 Per Unit