The following information pertains to one item of inventory

The following information pertains to one item of inventory of the Simon Company: Per unit Cost $ 200 Replacement cost 170 Selling price 190 Disposal costs 10 Normal profit margin 30 Using the lower of cost or market, this item should be valued at:

A/$150

B/$200

C/$170

D/$190

Solution

Inventory should be valued at cost of market whichever is lower.
Calculations:-
Net Realisable Value = Selling Price - Disposal Cost
NRV = 190-10 = $180

NRV - Normal Profit = 180 - 30 = $150
The “current market price” is defined as the current replacement cost of the inventory, as long as the market price does not exceed net realizable value; also, the market price shall not be less than the net realizable value, less the normal profit margin. Net realizable value is defined as the estimated selling price, minus estimated costs of completion and disposal.

Hence market price to be taken is $150
The cost of the Inventory is $200
As per the LCM, the inventory should be valued at $150 because market value is less than the cost.
Hence the answer is A). $150