Question

The replacement cost of an inventory item is $90. Net realizable value is $97.50. Net realizable value less a normal profit margin is $88.50. The cost of the item is $93. The designated market value used in applying Lower-of-Cost-or-Market is a) $90

b) $93
c) $88.50
d) $97.50

Answer 1

The designated market value for applying the Lower-of-Cost-or-Market method is $88.50, the middle value among replacement cost, net realizable value, and net realizable value less normal profit margin. The correct answer is (c) $88.50.

Step-by-step explanation:

The designated market value used in applying the Lower-of-Cost-or-Market (LCM) method when valuing inventory is $88.50. According to the LCM method, the inventory is valued at the lower of the cost or the market value. In this case, the market value is determined as the middle value between the replacement cost ($90.00), net realizable value ($97.50), and net realizable value less the normal profit margin ($88.50). The cost of the item is $93.00, which is higher than $88.50.