Question

The following information pertains to Hagen Metal Work’s ending inventory for the current year:

Item		Quantity				Unit Cost					Unit Market Value
C			90				$	24				$	16
D			75					22					20
K			40					25					28
M			22					15					17

Required
a. Determine the value of the ending inventory using the lower-of-cost-or-market rule applied to (1) each individual inventory item and (2) the inventory in aggregate.

		Ending Inventory
1.	Individual item method
2.	Aggregate method

b. Calculate the adjustment required under both methods, assuming the decline in value is immaterial.

		Adjustment
1.	Individual item method
2.	Aggregate method

Answer 1

Product	Unit	Total Cost	Total Market value	Lower of cost or market
C	90	90*24 = 2160	90*16 = 1440	1440
D	75	75*22 = 1650	75*20 = 1500	1500
K	40	40*25 = 1000	40*28 = 1120	1000
M	22	22*15 = 330	22*17 = 374	330
Total		5140	4434	4270

a. Determine the value of the ending inventory using the lower-of-cost-or-market rule applied to (1) each individual inventory item and (2) the inventory in aggregate.

	Ending inventory
Individual item method	4270
Aggregate method	4434

b. Calculate the adjustment required under both methods, assuming the decline in value is immaterial.

	Adjustment
Individual item method	5140-4270 = 870
Aggregate method	5140-4434 = 706