Question

Consider the following information pertaining to a company's inventory: product revolvers spurs hats quantity 16 23 12 cost 120 27 56 net realizable value150 22 40 applying the lower of cost or net realizable value rule to individual inventory items, at what amount should the company report its inventory?

Answer 1

When applying the lower of cost or net realizable value rule to individual inventory items, the company should report its inventory at the lower of cost or net realizable value for each product.

Step-by-step explanation:

When applying the lower of cost or net realizable value rule to individual inventory items, the company should report its inventory at the lower of cost or net realizable value for each product. The net realizable value is the estimated selling price minus any costs necessary to make the sale, such as marketing expenses. So, for the revolvers, the company should report the inventory at a cost of $120 because it is lower than the net realizable value of $150. Similarly, for the spurs, the inventory should be reported at a cost of $27 because it is lower than the net realizable value of $22. For the hats, the inventory should be reported at a cost of $40 because it is lower than the net realizable value of $56.