Question

Item 1 5 units Cost $50 Market $45 Item 2 7 units Cost $60 Market $65 Item 3 9 units Cost $30 Market $25 Applying the lower of cost or market method, the reported value of this company's ending inventory if LCM is applied to individual items is _____.

Answer 1

Ending Inventory $870

Step-by-step explanation:

Item #1 5 units Cost $50 Market $45 = 5 units x $45 = $225

Item #2 7 units Cost $60 Market $65 = 7 units x $60 = $420

Item #3 9 units Cost $30 Market $25 = 9 units x $25 = $225

Total inventory $225 + $420 + $225 = $870

For Items #3 and #1 As the market price ofthe items is lower than the historic cost (acquisition cost) of the good we shoudl decrease the valuation and use market price.