Chapter 9 Quiz

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Chapter 9

When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"? a.Net realizable value
b.Net realizable value less a normal profit margin
c.Current replacement cost
d.Discounted present value

The floor to be used in applying the lower-of-cost-or-market method to inventory is determined as the realizable value. realizable value less normal profit margin.
c.replacement cost.
d.selling price less costs of completion and disposal.

Why are inventories stated at lower-of-cost-or-market?
a.To report a loss when there is a decrease in the future utility. b.To be conservative.
c.To report a loss when there is a decrease in the future utility below the original cost. d.To permit future profits to be recognized.

A major advantage of the retail inventory method is that it
a.provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period. b.hides costs from competitors and customers. a more accurate statement of inventory costs than other methods. d.provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.

To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should a.include markups but not markdowns.

b.include markups and markdowns.
c.ignore both markups and markdowns.
d.include markdowns but not markups.

Muckenthaler Company sells product 2005WSC for $30 per unit. The cost of one unit of 2005WSC is $27, and the replacement cost is $26. The estimated cost to dispose of a unit is $6, and the normal profit is 40%. At what amount per unit should product...
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