Question

Farwell Company sells three different categories of tools (small, medium and large). The cost and market value of its inventory of tools are as follows.

Cost

Market

Small $ 87,040 $ 82,960
Medium 394,400 353,600
Large 206,720 227,120

Determine the value of the company’s inventory under the lower-of-cost-or-market approach

Answer 1

The value of the company’s inventory under the lower-of-cost-or-market approach is $643,280

Step-by-step explanation:

According to the Generally Accepted Accounting principles, the inventory should be recorded at cost or market value whichever is lower.

So, the inventory should be reported by this method in the books of accounts.

Now

For Small - $82,960

For Medium - $353,600

For Large - $206,720

So, the total value would be equal to

= $82,960 + $353,600 + $206,720

= $643,280