When Inventory Declines in Value Below Original (Historical) Cost, and This

question 21

Multiple Choice

When inventory declines in value below original (historical) cost, and this decline is considered other than temporary, what is the maximum amount that the inventory can be valued at?

• A) net realizable value
• B) selling price
• C) historical cost
• D) net realizable value reduced by a normal profit margin

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Definitions:

Machine-Hours

The total hours that a machine is operated over a specific period of time, used in allocating manufacturing costs.

Relevant Range

The scope of operations in which the beliefs regarding constant and fluctuating cost patterns hold true.

Cost Formula

An equation used to predict the total costs associated with a certain level of activity or production volume.

Selling

The process of promoting and exchanging goods or services for value with customers.