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Lower of Cost or Market Inventory
Bob's Jewelry Company's inventory records indicates the following:
Normal
Quantity
Unit Cost
Replacement Cost
Profit
Item
On Hand
When Acquired
at Year-End
Selling Price
Margin
Watches
100
$258
$269
$230
50
Rings
250
903
1,025
950
Bracelets
60
1,588
1,680
1,783
80
Compute the total ending inventory value using the Lower of Cost or Market rule
applied to each item.
Answer
Bob's Jewelry Company
Quantity on hand (a)
Cost per unit,$
Replacement cost per item, $
Lower of Cost / Replacement cost per unit, $ (b)
Total value (a*b), $
258.00
269.00
25,800
903.00
1,025.00
225,750
1,588.00
1,680.00
95,280
346,830
Here market value is the replacement cost of inventories at year end. Accountants define replacement cost as market value.
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