Question

Which of these might cause the value of inventory to fall below its original cost? (check all that apply)

1) decrease in gross profit
2) increased competition
3) damage
4) obsolescence from going out of style

Answer 1

Decrease in gross profit, damage, and obsolescence from going out of style can cause the value of inventory to fall below its original cost.

Step-by-step explanation:

The value of inventory can fall below its original cost due to several reasons:

1. Decrease in gross profit: If the company's gross profit decreases, it may result in selling products at lower prices, leading to a decrease in the value of inventory.
2. Damage: If the inventory gets damaged, it may become unsellable or require repairs, which can reduce its value.
3. Obsolescence from going out of style: When products go out of style or become outdated, their value may decrease, resulting in a lower value of inventory.