Question

Data related to the inventories of Kimzey Medical Supply are presented below:

Surgical Surgical Rehab Rehab
Equipment Supplies Equipment Supplies
Selling price $ 260 $ 120 $ 340 $ 165
Cost 170 90 250 162
Replacement cost 240 80 235 158
Costs to sell 30 5 25 10
Normal gross profit ratio 30 % 30 % 30 % 20 %

In applying the lower of cost or market rule, the inventory of surgical equipment would be valued at:

Multiple Choice

a. $230

b. $240

c. $170

d. $152

Answer 1

The correct option is C,$170

Step-by-step explanation:

The inventory of surgical equipment is to be valued at lower of cost and or market rule.

On the cost side there is only amount,which is the original cost of $170,but the market facing amounts are replacement and net realizable value.

The replacement cost of $240 is higher than the net realizable value of $230(net realizable value is selling price of $260 less costs to sell of $30).

Finally in comparing the cost and net realizable value,cost is lower,hence the inventory of surgical equipment is valued at $170 cost price