Mason Company has the following per unit original costs and replacement costs for its inventory. The company applies LCM to individual items of product: Part A: 20 units with a cost of $3 and replacement cost of $3.50.
Part B: 30 units with a cost of $9 and replacement cost of $8.50.
Part C: 60 units with a cost of $8 and replacement cost of $7.00.
When applying the lower of cost or market method, the total value of this company's ending inventory must be reported as:
A)$810.00.
B)$745.00.
C)$75.00.
D)$735.00.
E)$1,545.00.

Question

Quizplus · Accepted Answer

To apply the lower of cost or market (LCM) method, we need to compare the original cost and the replacement cost for each item and choose the lower value. Then, we multiply the chosen value by the number of units to get the total inventory value.

For Part A, the replacement cost is higher than the original cost, so we choose the original cost of $3 per unit. Thus, the value of Part A inventory is 20 x $3 = $60.

For Part B, the replacement cost is lower than the original cost, so we choose the replacement cost of $8.50 per unit. Thus, the value of Part B inventory is 30 x $8.50 = $255.

For Part C, the replacement cost is lower than the original cost, so we choose the replacement cost of $7.00 per unit. Thus, the value of Part C inventory is 60 x $7.00 = $420.

Therefore, the total value of ending inventory is $60 + $255 + $420 = $735. The correct answer is D) $735.00.

Mason Company Has the Following Per Unit Original Costs and Replacement