Question

A company had been selling its product for $20 per unit, but recently lowered the selling price to $15 per unit. The company's current inventory consists of 200 units purchased at $16 per unit. The replacement cost of this merchandise is currently $13 per unit. At what amount should the company's inventory to be reported on the balance sheet under the lower of cost or market rule

Answer 1

$2,600

Step-by-step explanation:

As we know that the inventory should be recorded at a cost or market value which ever is lower

In the given case,

The cost is

= 200 units ×$16 per unit

= $3,200

And, the market value is

= 200 units × $13 per unit

= $2,600

So as we can see that the lower value is $2,600 and the same is to be reported on the balance sheet