Question

A company's normal selling price for its product is $20 per unit. however, due to market competition, the selling price has fallen to $15 per unit. this company's current inventory consists of 200 units purchased at $16 per unit. replacement cost has fallen to $13 per unit. calculate the value of this company's inventory at the lower of cost or market.

Answer 1

You are given a company's normal selling price for its product that is $20 per unit. Also, due to market competition, you are given the selling price that has fallen to $15 per unit. You are also given the company's current inventory that consists of 200 units purchased at $16 per unit. Also, you are given the replacement cost that has fallen to $13 per unit. You are asked to calculate the value of this company's inventory at the lower of cost or market.

You are not going to use the company;s selling price nor the price when the product is falling, but you are going to use the replacement cost because the company has to take measurable accounts regarding of the downrate of their prices. And so,

200 units multiplied by $16 per unit = $2,600