When the Replacement Cost of Inventory Drops Below the Cost

question 86

Multiple Choice

When the replacement cost of inventory drops below the cost recorded in the financial records,applying the lower of cost or net realizable value (LC&NRV) rule means:

• A)a decrease in cost of goods sold.
• B)no change in net income,other things being equal.
• C)inventory be written down to its net realizable value.
• D)none of the above.

---

Definitions:

Average Total Cost

The cost of producing each unit, calculated by dividing the overall production expenses by the quantity of units manufactured.

Normal Profit

The minimum level of profit needed for a company to remain competitive in the market, factoring in the cost of opportunity.

Long-Run Equilibrium

A state in which all factors of production and costs are variable, and firms in a competitive market make just enough profit to cover their costs.

Marginal Cost

The increase or decrease in the total cost incurred from producing one additional unit of a good or service.