Question

A company has the following per unit original costs and replacement costs for its inventory. LCM is applied to individual items. Part A: 50 units with a cost of $5, and replacement cost of $4.50 Part B: 75 units with a cost of $6, and replacement cost of $6.50 Part C: 160 units with a cost of $3, and replacement cost of $2.50 Under the lower of cost or market method, the total value of this company's ending inventory is:_________

Answer 1

Answer:

The answer is: $1,075

Explanation:

Part A has the following unit costs:

• 50 units x 5$ per unit = $250
• 50 units x $4.50 per unit = $225

Part B has the following unit costs:

• 75 units x 6$ per unit = $450
• 75 units x $6.50 per unit = $487.50

Part C has the following unit costs:

• 160 units x 3$ per unit = $480
• 160 units x $2.50 per unit = $400

If we use the lower cost of market method to value the company's ending inventory we have to choose the lowest possible price for parts A, B and C.

ending inventory = $225 (part A) + $450 (part B) + $400 (part C) = $1,075