One Hundred Units of Inventory on Hand at the End

question 107

Multiple Choice

One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO.Current replacement cost is $8.00.How would the Cost of goods sold be affected by the adjusting entry needed under lower-of-cost-or-market?

• A) Cost of goods sold would not be affected.
• B) Cost of goods sold would go down by $80.
• C) Cost of goods sold would go up by $200.
• D) Cost of goods sold would go down by $200.

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Definitions:

Implicit Costs

Implicit costs refer to the opportunity costs of using resources that a company already owns, without any direct payment, for its own production purposes.

Explicit Costs

Direct, out-of-pocket payments for wages, rent, materials, and other inputs required for the production of goods or services.

Total Cost

The total amount of money spent on creating goods or services, encompassing both constant and fluctuating expenses.

Implicit Cost

Represents the opportunity costs of using resources owned by the firm for its own production processes, without direct payment.