Question

A company’s normal selling price for its product is $30 per unit. However, due to market competition, the selling price has fallen to $25 per unit. This company's current FIFO inventory consists of 300 units purchased at $26 per unit. Net realizable value has fallen to $23 per unit. Calculate the value of this company's inventory at the lower of cost or market.

Answer 1

The company's inventory is valued at the lower of cost or market. Given that the net realizable value has fallen to $23 per unit, and the cost is $26 per unit, we value the inventory at $23 per unit, amounting to a total inventory value of $6900.

Step-by-step explanation:

The value of the company's inventory at the lower of cost or market must be calculated based on the market competition and the net realizable value. Since the current net realizable value per unit is $23 and the cost per unit is $26, we use the lower of the two to value the inventory. Therefore:

• Lower of cost or market per unit: $23
• Total inventory value: 300 units × $23/unit = $6900

This computed total inventory value reflects the application of the lower of cost or market rule that ensures inventory is recorded on the balance sheet at the lower of what it cost to produce or its current market value.

Answer 2

$6,900

Step-by-step explanation:

Given:

Company’s normal selling price for its product = $30 per unit

current FIFO inventory = 300 units

Purchasing cost of the inventory = $26 per unit

Selling price = $25 per unit

Net realizable value = $23 per unit

Now,

Under Cost or Market Price

The lower price is Net realizable value i.e $23

Hence,

The value of this company's inventory at the lower of cost or market will be

= $23 × Units in the inventory

= $23 × 300

= $6,900