Question

A company normally sells its product for $18 per unit. However, the selling price has fallen...

A company normally sells its product for $18 per unit. However, the selling price has fallen to $12 per unit. This company's current inventory consists of 300 units purchased at $16 per unit. Replacement cost has now fallen to $7 per unit. Calculate the value of this company's inventory at the lower of cost or market.

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Answer #1

Given that the company's current inventory consists of 300 units.
Current selling price in market=$12 per unit
Replacement cost=$7 per unit

Value of inventory (considering the current selling price in market)=Selling price in market*Total units available in inventory
=$12*300=$3600

Value of inventory (considering replacement cost)=Replacement cost price*Total units available in inventory
=$7*300=$2100

Value of the company's inventory at the lower of cost (that is $2100) or market(that is $3600)=$2100

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