Acompany normally sells its product for $20 per unit. however, the selling price has fallen to $15 per unit. this company's current fifo inventory consists of 200 units purchased at $16 per unit. net realizable value has now fallen to $13 per unit. what is the amount of the lower cost of market adjustment the company must make as a result of this decline in value?

Inventory write down to $2,600

Inventory loss of $600

Explanation:

According to the generally accepted accounting principles we always record inventory at the lower of market or net realizable value.

We record at Cost of $13/unit which gives us a total closing inventory of

Closing inventory = 13*200 = $2,600, this is the amount that is to be recorded in the balance sheet.

A loss of 16-16=$3/ unit is to be recorded, giving a total loss of 3*200 = $600

This loss can be recorded in the cost of goods sold part when the inventory is actually sold.

Hope that helps.

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