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Lowering of Cost or Market Method

1. (Lower of Cost or Market) The inventory of 3T Company on December 31, 2005, consists of the following items.

Part No. Quantity Cost per Unit Cost to Replace per Unit
110 6 00 $90 $100
111 1,000 60 52
112 500 80 76
113 200 170 180
120 400 205 208
121a 1,600 16 14
122 300 240 235
- a Part No. 121 is obsolete and has a realizable value of $0.20 each as scrap.

Instructions:
a. Determine the inventory as of December 31, 2005, by the lower of cost or market method, applying this method directly to each item.
b. Determine the inventory by the lower of cost or market method, applying the method to the total of the inventory.

Solution Preview

a. Determine the inventory as of December 31, 2005, by the lower of cost or market method, applying this method directly to each item.

In this case we go item by item and select for each item, the lower of cost or market. The total sum is the ...

$2.19