Question

If the cost of an item of inventory is $70, the current replacement cost is $65, and the sales price is $85, the amount included in inventory according to the lower of cost or market is

a.$65
b.$70
c.$85
d.$160

Answer 1

The amount to include in inventory based on the lower of cost or market rule is $65. This is because it is the lower value between the cost of $70 and the current replacement cost of a. $65.

Step-by-step explanation:

The question relates to inventory valuation, specifically the lower of cost or market rule. This rule states that when valuing inventory, a company should record the inventory at the lower of either its historical cost or its current replacement cost. Given that the historical cost is $70, the current replacement cost is $65, and the sales price is $85, we must choose the lower value between the cost and the current replacement cost, which is $65.

Therefore, the amount that should be included in inventory according to the lower of cost or market rule is $65. Hence, the correct answer to the question is (a) $65.