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A company's normal selling price for its product is $28 per unit. however, due to market competition, the selling price has fallen to $23 per unit. this company's current inventory consists of 280 units purchased at $24 per unit. replacement cost has fallen to $21 per unit. calculate the value of this company's inventory at the lower of cost or market.

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jepessoa

Answer:

$5,880

Explanation:

When a retailer uses the lower of cost or market method to determine the value of inventory, they must assign the lower of the following three:

  1. Cost of inventory  = $24 per unit x 280 units = $6,720
  2. Replacement cost  = $21 per unit x 280 units = $5,880
  3. Market value = $23 per unit x 280 units = $6,440

Thee lowest value is the replacement value ($5,880) and that is the price at which inventory should be recorded.

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