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You have been asked by the financial vice president (VP) to develop a short presentation on the lower of cost or market method for inventory purposes. The financial VP needs to explain this method to the president because it appears that a portion of the company's inventory has declined in value.
The financial VP asks you to answer the following questions.
- What is the purpose of the lower‐of‐cost‐or‐market method?
- What is meant by “market”? ( Hint: Discuss the ceiling and floor constraints.)