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29 June, 22:27

A company has the following per unit original costs and replacement costs for its inventory: Part A: 5 units with a cost of $5, and replacement cost of $4.00 Part B: 10 units with a cost of $6, and replacement cost of $7.00 Part C: 10 units with a cost of $3, and replacement cost of $2.00 Using the lower of cost or market method applied to the individual items, the total value of this company's ending inventory is:

(A) $100.00

(B) $125.00

(C) $110.00.

(D) $115.00.

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  1. 29 June, 22:48
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    Option (A) is correct.

    Explanation:

    Part A:

    Cost = No. of units * cost per unit

    = 5 * $5

    = $25

    Replacement cost = No. of units * cost per unit

    = 5 * $4

    = $20

    Value to be recognized = $20

    Part B:

    Cost = No. of units * cost per unit

    = 10 * $6

    = $60

    Replacement cost = No. of units * cost per unit

    = 10 * $7

    = $70

    Value to be recognized = $60

    Part C:

    Cost = No. of units * cost per unit

    = 10 * $3

    = $30

    Replacement cost = No. of units * cost per unit

    = 10 * $2

    = $20

    Value to be recognized = $20

    Therefore,

    Value of Ending inventory = Sum of recognized value of all the three parts

    = $20 + $60 + $20

    = $100

    Hence, the total value of this company's ending inventory is $100.
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