Question

In no case can "market" in the lower-of-cost-or-market rule be more than:_______.

a. estimated selling price in the ordinary course of business.
b. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses.
c. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal.
d. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal and an allowance for an approximately normal profit margin.

Answer 1

b. estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal, an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses.

Step-by-step explanation:

Note that the lower of cost market rule is explicitly encouraging businesses to record the lowest cost of inventory; for example using the original cost or its current market price, whichever is favourable.

Thus, the "market" must not be more than the estimated selling price in the ordinary course of business, with an allowance for an approximately normal profit margin, and an adequate reserve for possible future losses.