The Kidde Corporation uses the lower-of-cost-or-market method to value inventory.Data regarding the items in work-in-process inventory are presented below. The value for cost to be used in the lower-of-cost-or-market comparison for the markers is

Question

The Kidde Corporation uses the lower-of-cost-or-market method to value inventory.Data regarding the items in work-in-process inventory are presented below.  The value for cost to be used in the lower-of-cost-or-market comparison for the markers is

Quizplus · Accepted Answer

The lower-of-cost-or-market rule requires that inventory be reported at the lower of its cost or market value. Market value is defined as the current replacement cost, not sales price. The cost of work-in-process inventory is typically measured as the sum of all expenditures involved in the production process up to the current stage, including direct materials, direct labor, and manufacturing overhead. In this case, the cost of the markers in work-in-process inventory is $24,000 ($20,000 direct materials + $3,000 direct labor + $1,000 manufacturing overhead). This is the cost figure that should be used for the lower-of-cost-or-market comparison.

The Kidde Corporation Uses the Lower-Of-Cost-Or-Market Method to Value Inventory