Question
1. If a company maintains inventories close to zero (to avoid any obsolescence problems), which of the following inventory cost formulas will result in the
1. If a company maintains inventories close to zero (to avoid any obsolescence problems), which of the following inventory cost formulas will result in the highest cost of goods sold expense?
a. First-in First Out (FIFO)
b. Weighted-average
c. Either FIFO or weighted-average will provide a similar cost of goods sold expense.
d. cannot tell from the information provided
2. Tamarack Co. prepares its estimate of the lower of cost and net realizable value of its inventory. Inventory item 101 cost $45 and its current replacement cost is $50. The item is currently selling in the market for $55 and selling costs are estimated to be $6. Tamarack expects to earn a profit of $4 on the sale of this item. In its year-end financial statements, Tamarack Co. should value this item at
a. $50
b. $45
c. $49
d. $55
Please provide calculations and brief explanations.
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