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timer Asked: Jan 3rd, 2019
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Assignment Choice #1: Case of the Steel Company

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? Summarize the reason for the amounts Steel Company’s inventory should be reported on the balance sheet by explaining the application of lower of cost or market rule in this situation. Appraise, judge, and support why the lower of cost or market rule is used to report inventory.

Your well-written paper must be 2-3 pages, in addition to title and reference pages. The paper should be formatted according to the CSU-Global Guide to Writing and APA Requirements (Links to an external site.)Links to an external site.. Cite at least two peer-reviewed sources, in addition to the required reading for the module.

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School: Rice University

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Case of the Steel Company
Student’s Name
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Case of the Steel Company
The case relates to a company known as Steel Company that purchases its inventory from
various suppliers. Steel Company has been in business for two years and produces its finished
products from components that are produced by different suppliers. In each of the two years, the
cost of the inventory purchased has been lower than in the previous year. When there is a
decrease in the cost of inventory over time, the profitability of the company could be enhanced
due to reduced costs. In the financial records of the company, inventories are recorded at the
lower of cost or market value of the inventories. The reducing cost of inventory is an indication
that the original cost of the inventories is higher than the market value and the replacement cost.
The replacement cost here refers to the amount t...

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