Question

The replacement cost of an inventory item is $90. Net realizable value is $97.50. Net realizable value less a normal profit margin is $88.50. The cost of the item is $93. The designated market value used in applying Lower-of-Cost-or-Market is

A. $97.50.
B. $88.50.
C. $90.
D. $93.

Answer 1

The designated market value used in applying Lower-of-Cost-or-Market is B) $88.50.

Step-by-step explanation:

The designated market value used in applying Lower-of-Cost-or-Market is $88.50.

In Lower-of-Cost-or-Market (LCM) rule, the inventory value is reported at the lower of cost or market value. The market value is determined by comparing the net realizable value (NRV) and net realizable value less a normal profit margin.

In this case, the net realizable value less a normal profit margin is $88.50, which is lower than the replacement cost of $90. Therefore, the designated market value used in applying LCM is $88.50.