Question

Rickety Company purchased 1,000 widgets and has 200 widgets in its ending inventory at a cost of $91 each and a current replacement cost of $80 each. The ending inventory under lower-of-cost-or-market is $80,000. $16,000. $91,000. $18,200.

Answer 1

Answer:

The correct option is B that is $16,000

Explanation:

LCM stands for Lower of cost or market, which is defined as the business need to record the inventory cost at whichever is lower, the current market price or the original cost.

This situation usually arises when the inventory has deteriorated, or become obsolete or the prices of market has declined.

So, in this case, the ending inventory under this method,

Ending inventory = Widgets × Cost

where

widgets will be 200

Cost would be $80 (as using the lower of cost method, so the cost which is lowest among the two will be taken. So, $80 is lowest is considered)

Putting the values above:

Ending inventory = 200 × $80

Ending inventory = $16,000