From the choices given, it is correct to state that the Lower Cost or Market for the Inventory applied separately to each product is $28,280. (Option A) See the explanation below.
What is Lower Cost or Market for the Inventory rule?
According to the lower cost or market rule, a company must record the cost of inventory at whichever cost is lower - the original cost or the current market price. This condition usually occurs when inventory has deteriorated or become outdated, or when market values have fallen.
The computation showing the above solution is given as follows:
Solved using Worksheet:
Step I - Multiply all Quantity by Cost per Unit to get the Total Cost.
Step II - Multiply all Quantities by Market Per Unit to get the Total Market Cost.
Step III - For each product category select which cost is less either Total market Cost OR Total Cost [Not both]
In this case, we have:
$6,940 + 7,860 + 13,480 = 28, 280 (Option A). See attached image.
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