When the Value of Inventory Is Lower Than Its Cost

question 87

True/False

When the value of inventory is lower than its cost, the inventory is written down to its net realizable value.

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Definitions:

Conversion Costs

Costs in manufacturing that include both direct labor and overhead costs, specifically associated with the conversion of raw materials into finished goods.

Direct Materials

Raw materials that are directly traceable to the production of specific goods or services.

Factory Overhead

All indirect costs associated with manufacturing, such as utilities, depreciation, and maintenance, not directly tied to production.

Conversion Costs

The sum of labor costs and overhead expenses related to the transformation of materials into finished products.