Many companies use the lower-of-cost-or-market to value inventory. They compare the current value of their inventory with its historical cost and adjust the value, if necessary, to ensure the inventory is booked at the lower of the two values. Argue why inventories are valued using the "lower of cost or market" method. Evaluate at least two arguments

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Trinidad TremblayLv2

30 Jan 2019

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Steel Company, a wholesaler that has been in business for twoyears, purchases its inventory from various suppliers. During thetwo years, each purchase has been at a lower price than theprevious purchase. Steel uses the lower of cost or market method tovalue inventories. The original cost of the inventory is abovereplacement cost and below their net realizable value. That is, thenet realizable value less the normal profit margin is belowreplacement cost.

Required: What do you think about the criteriaused to determine which costs should be included in the inventory?Summarize the reason for the amounts Steel Companyâs inventoryshould be reported on the balance sheet by explaining theapplication of lower of cost or market rule in this situation.Appraise, judge, and support why the lower of cost or market ruleis used to report inventory.

ceruleangoat931

Steel Company, a wholesaler that has been in business for two years, purchases its inventory from various suppliers. During the two years, each purchase has been at a lower price than the previous purchase. Steel uses the lower of cost or market method to value inventories. The original cost of the inventory is above replacement cost and below their net realizable value. That is, the net realizable value less the normal profit margin is below replacement cost.

Required: What do you think about the criteria used to determine which costs should be included in the inventory?

periwinklecockroach465

Marathon Petroleum Corporation disclosed the following in its 2015 annual report. The company reported revenues and cost of revenues of $75,384 million and $57,138 million respectively in 2015.

Inventories are stated at the lower of cost or market. Costs of crude oil, refinery feedstocks and refined products are aggregated on a consolidated basis for purposes of assessing if the LIFO cost basis of these inventories may have to be written down to market values. At December 31, 2015, market values for these inventories, which totaled approximately 4.0 billion gallons, were lower than their LIFO cost basis and, as a result, we recorded an inventory valuation charge of $345 million to cost of revenues to value these inventories at the lower of cost or market.

a. Compute gross profit margin for 2015. Round answer to one decimal place (ex: 0.2345 = 23.5%) Answer%

b. What would gross profit margin and the gross profit margin percentage have been if the company had not had to record the lower of cost or market adjustment? Round answer to one decimal place (ex: 0.2345 = 23.5%) Answer%

c. At the end of the year, Marathonâs LIFO reserve was $684 million. If the company had used FIFO, what would the inventory valuation charge have been? $Answer million

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