Teel Distribution Co Teel Records Losses That Result from Applying the Lower-Of-Cost-Or-Market Rule

question 79

Multiple Choice

Teel Distribution Co.has determined its December 31, 2007 inventory on a FIFO basis at $250,000.Information pertaining to that inventory follows: $$\begin{array} { l r } \text { Estimated selling price } & \$ 255,000 \\\text { Estimated cost of disposal } & 10,000 \\\text { Normal profit margin } & 30,000 \\\text { Current replacement cost } & 225,000\end{array}$$ Teel records losses that result from applying the lower-of-cost-or-market rule.At December 31, 2007, the loss that Teel should recognize is

• A)$0.
• B)$5,000.
• C)$20,000.
• D)$25,000.

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Definitions:

Unit Material Cost

The cost attributed to a single unit of production, including direct materials used in creating that unit.

Physical Units

A method of measuring output or production volume in a process costing system using actual physical units.

Total Costs

The complete sum of all expenses incurred by a business in producing goods or services, including fixed and variable costs.

Equivalent Units

A concept in cost accounting used to allocate costs to partially completed goods, measured in terms of the number of finished units those in-process items represent.