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7 April, 03:54

Smith Company's inventory cost is $100. The expected sales price is $110, estimated selling costs are $6. The normal gross profit ratio is 20% of selling price. The replacement cost of the inventory is $106. Smith Company uses the LIFO inventory method so must use the lower of cost or market approach and this inventory item should be valued at

A. $102

B. $106

C. $104

D. $110

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Answers (1)
  1. 7 April, 04:00
    0
    C) $104

    Explanation:

    The lower of cost or market approach states that a company must record its merchandise inventory at the lowest cost between the replacement cost and the net realizable value.

    net realizable value = selling price - selling costs = $110 - $6 = $104

    replacement cost = $106

    In this case the net realizable value is lower than the replacement cost.
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Home » Business » Smith Company's inventory cost is $100. The expected sales price is $110, estimated selling costs are $6. The normal gross profit ratio is 20% of selling price. The replacement cost of the inventory is $106.
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