Lower of Cost and Net Realizable Value

question 121

Multiple Choice

Lower of cost and net realizable value

• A) is most conservative if applied to the total inventory.
• B) is most conservative if applied to major categories of inventory.
• C) is most conservative if applied to individual items of inventory.
• D) must be applied to major categories for income tax purposes.

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Definitions:

Variable Cost

Variable costs are expenses that vary directly with the level of production or business activity, such as raw materials and direct labor.

Income Increase

Income increase refers to the rise in earnings over a period, which could be due to various factors such as revenue growth, cost reduction, or operational efficiency improvements.

DuPont Formula

A financial ratio based formula that measures a company's return on equity by multiplying its net profit margin, asset turnover, and financial leverage.

Investment Turnover

A ratio that measures the efficiency with which a company is able to generate revenue from its investments in assets.