US CMA Part 1 · Chapter 1 · Question 6 of 23
Marlow Inc. measures its inventory using FIFO. It holds 2,500 units of a component costing $42 each. The estimated selling price is $46 per unit, and estimated costs to complete and sell are $7 per unit. What inventory write-down is required at year end under US GAAP?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) $7,500
Explanation
For inventory measured using FIFO or average cost, US GAAP requires the lower of cost and net realizable value. NRV = $46 - $7 = $39 per unit, which is below cost of $42. Write-down = ($42 - $39) x 2,500 = $7,500.
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