Nelson Corporation sells three different products. The following information is available on December 31: $$\begin{array} { | c | c | c | c | }
\hline \text { Inventory Item } & \text { Units } & \text { Cost per unit } & \text { Market value per unit } \
\hline X & 300 & \$ 4.00 & \$ 3.50 \
\hline Y & 600 & \$ 2.00 & \$ 1.50 \
\hline Z & 1,500 & \$ 3.00 & \$ 4.00 \
\hline
\end{array}$$ When applying the lower of cost or market rule to each item, what will Nelson's total ending inventory balance be?
A)$6,900
B)$6,450
C)$7,950
D)$6,600

Question

Nelson Corporation sells three different products. The following information is available on December 31: $$\begin{array} { | c | c | c | c | } 
\hline \text { Inventory Item } & \text { Units } & \text { Cost per unit } & \text { Market value per unit } \
\hline X & 300 & \$ 4.00 & \$ 3.50 \
\hline Y & 600 & \$ 2.00 & \$ 1.50 \
\hline Z & 1,500 & \$ 3.00 & \$ 4.00 \
\hline
\end{array}$$ When applying the lower of cost or market rule to each item, what will Nelson's total ending inventory balance be?
A)$6,900
B)$6,450
C)$7,950
D)$6,600

Quizplus · Accepted Answer

The lower of cost or market rule requires inventory to be valued at the lower of its cost or market value. For item X, the market value is lower ($3.50), so use $3.50 per unit. For item Y, the market value is lower ($1.50), so use $1.50 per unit. For item Z, the cost is lower ($3.00), so use $3.00 per unit. The total ending inventory is (300 units * $3.50) + (600 units * $1.50) + (1,500 units * $3.00) = $6,450.

Nelson Corporation Sells Three Different Products When Applying the Lower of Cost or Market Rule to Available