The original cost of an inventory item is below both replacement cost and net realizable value. The net realizable value less normal profit margin is below the original cost. Under the lower of cost or market method, the inventory item should be valued at
a. Replacement cost.
b. Net realizable value.
c. Net realizable value less normal profit margin.
d. Original cost.
2. On January 1, year 2, Card Corp. signed a three-year noncancelable purchase contract, which allows Card to purchase up to 500,000 units of a computer part annually from Hart Supply Co. at $.10 per unit and guarantees a minimum annual purchase of 100,000 units. During year 2, the part unexpectedly became obsolete. Card had 250,000 units of this inventory at December 31, year 2, and believes these parts can be sold as scrap for $.02 per unit. What amount of probable loss from the purchase commitment should Card report in its year 2 income statement?
a. $24,000
b. $20,000
c. $16,000
d. $ 8,000