Robust Inc. has the following information related to an item in its ending inventory. Product 66 has a cost of $812, a replacement cost of $775, a net realizable value of $800, and a normal profit margin of $50. What is the final lower-of-cost-or-market inventory value for product 66?
A) $800.
B) $775.
C) $812.
D) $762.

Question

Quizplus · Accepted Answer

The lower-of-cost-or-market (LCM) rule requires that inventory be reported at the lower of its historical cost or market value (replacement cost), but not more than the net realizable value (NRV) or less than the NRV minus a normal profit margin. The cost is $812, the replacement cost is $775, the NRV is $800, and the NRV minus the normal profit margin is $750 ($800 - $50). The market value (replacement cost) of $775 is lower than the cost but within the NRV and NRV minus profit margin range, making $775 the correct LCM value.