In Applying the Lower of Cost and Net Realizable Value

question 106

Multiple Choice

In applying the lower of cost and net realizable value rule,the inventory of supplies would be valued at:

• A)$45,000.
• B)$54,000.
• C)$41,000.
• D)$60,000.

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Definitions:

Contribution Margin Ratio

The proportion of sales revenue that exceeds variable costs, indicating how much revenue contributes to fixed costs and profit.

Margin of Safety Percentage

A financial ratio indicating the difference between actual sales and break-even sales, used to determine the risk of incurring a loss.

Break-even Sales

The level of sales at which a business neither makes a profit nor a loss, calculated by dividing fixed costs by the contribution margin ratio.

Total Sales

The overall revenue generated from goods or services sold by a business in a specific period.