Question

An analysis of the inventory owned by Owens Company as of the Company’s fiscal closing date is shown in the following table.

Item	Quantity	Cost per Unit			Market Value per Unit
A	200	$	20		$	17
B	190	$	50		$	52
C	400	$	34		$	30
D	320	$	25		$	29

Assuming Owens applies the lower-of-cost-or-market rule on an individual basis, the Company would be required to recognize an expense amounting to

Multiple Choice

$1,660.

$2,200.

$3,860.

$540.

Answer 1

Correct answer---$2200

			Inventory value			Total Inventory Cost	Expense to be recognized
Items	Cost per unit	Market value per unit	Per Unit as per Lower of cost or market value	Number of units	Total Value
A	$      20.00	$    17.00	$         17.00	200	$       3,400.00	$     4,000.00	$     600.00
B	$      50.00	$    52.00	$         52.00	190	$       9,880.00	$     9,500.00
C	$      34.00	$    30.00	$         30.00	400	$     12,000.00	$ 13,600.00	$ 1,600.00
D	$      25.00	$    29.00	$         29.00	320	$       9,280.00	$     8,000.00
Total					$     34,560.00	$ 35,100.00	$ 2,200.00

Expense will be recorded only when cost is lower than market value.