Question

Stephanie Company sells three different types of home heating stoves (gas, wood, and pellet).

The cost and market value of its inventory of stoves are as follows. Cost Market Gas $ 85,000 $ 80,000 Wood 260,000 290,000 Pellet 118,000 100,000 Determine the value of the company’s inventory under the lower-of-cost-or-market approach.

Answer 1

To determine the value of the company's inventory under the lower-of-cost-or-market approach, we need to compare the cost and market value of each type of stove and choose the lower value for each one. Then we add up the lower values to get the total inventory value. Here's how to do it:

Gas stove:
Cost: $85,000
Market value: $80,000

The market value is lower, so we use that: $80,000

Wood stove:
Cost: $260,000
Market value: $290,000

The cost is lower, so we use that: $260,000

Pellet stove:
Cost: $118,000
Market value: $100,000

The market value is lower, so we use that: $100,000

Now we add up the lower values for each type of stove:

$80,000 + $260,000 + $100,000 = $440,000

Therefore, the value of the company's inventory under the lower-of-cost-or-market approach is $440,000.