Question

If the cost of an item of inventory is $60, the current replacement cost is $65, and the selling price is $95, the amount included in inventory according to the lower of cost or market concept is:

Answer 1

Answer:

The amount included in the inventory is $60

Explanation:

Lower of cost and net realizable value determine the value of closing inventory based on the cost incurred to produce or purchase a inventory unit or Market value of the inventory unit which ever is lower. In this question cost of unit of inventory is $60 and the replacement cost which market value of the item of inventory. The unit cost of an item of inventory is lower as compared to the replacement value.