A Firm Is Writing Its Inventory Down to the Lower

question 122

Multiple Choice

A firm is writing its inventory down to the lower of cost or market. It has determined the following per unit costs and market prices for its product: $\begin{array}{ll}\text { Original cost } & \$ 104 \\\text { Sales price } & 120 \\\text { Selling cost } & 20 \\\text { Normal profit } & 18 \\\text { Replacement cost } & 78\end{array}$ Given these data, the firm should value its inventory at a per unit cost of

• A) $104
• B) $100
• C) $82
• D) $78

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Definitions:

Income Function

A mathematical representation that shows how an individual's or firm's income changes in relation to other factors, such as labor or capital investment.

Identical Expected Values

Situations where two or more uncertain alternatives have the same expected outcome or result.

Investment Opportunity

A financial or economic chance to invest capital with the expectation of achieving a profitable return.

Risk Averse

Condition of preferring a certain income to a risky income with the same expected value.