The Use of the Lower of Cost or Market Method

question 1

Multiple Choice

The use of the lower of cost or market method to value inventory for reporting purposes employs the accounting principle of

• A)cost-benefit.
• B)matching.
• C)historical cost.
• D)conservatism.

---

Definitions:

Price Floor

A government-imposed minimum price that can be charged for a commodity, above what would be set by market forces, to ensure that producers receive a minimum income.

Equilibrium Price

The price in the market where the amount of products offered matches the amount of products consumers want to buy.

Quota Rent

Quota Rent is the economic rent a producer earns from the difference between the domestic price and the world price due to a quota system limiting imports.

Demand Price

The highest price a consumer is willing to pay for a good or service.