To determine the value of the inventory for rehab equipment using the lower of cost or market rule, we need to follow a detailed step-by-step process.
### Step-by-Step Solution:
1. Identifying Key Data:
- Selling Price: \[tex]$415
- Cost: \$[/tex]325
- Replacement Cost: \[tex]$310
- Costs to Sell: \$[/tex]52
- Normal Gross Profit Ratio: 30% (0.30)
2. Calculate Normal Profit:
[tex]\[
\text{Normal Profit} = \text{Selling Price} \times \text{Normal Gross Profit Ratio}
\][/tex]
[tex]\[
\text{Normal Profit} = 415 \times 0.30 = 124.5
\][/tex]
3. Determine Net Realizable Value (NRV):
[tex]\[
\text{Net Realizable Value} = \text{Selling Price} - \text{Costs to Sell}
\][/tex]
[tex]\[
\text{Net Realizable Value} = 415 - 52 = 363
\][/tex]
4. Calculate the Lower Bound:
[tex]\[
\text{Net Realizable Value Minus Normal Profit} = \text{Net Realizable Value} - \text{Normal Profit}
\][/tex]
[tex]\[
\text{Net Realizable Value Minus Normal Profit} = 363 - 124.5 = 238.5
\][/tex]
5. Establish the Market Value:
Market value is determined as the middle value among the replacement cost, NRV, and NRV minus normal profit.
[tex]\[
\text{Replacement Cost} = 310
\][/tex]
[tex]\[
\text{Net Realizable Value} = 363
\][/tex]
[tex]\[
\text{NRV Minus Normal Profit} = 238.5
\][/tex]
Thus, we sort these values:
[tex]\[
238.5, 310, 363
\][/tex]
The middle value here is:
[tex]\[
\text{Market Value} = 310
\][/tex]
6. Choose the Lower of Cost or Market Value:
[tex]\[
\text{Cost} = 325
\][/tex]
[tex]\[
\text{Market Value} = 310
\][/tex]
According to the lower of cost or market rule, the inventory should be valued at the lower of these two figures, which is:
[tex]\[
\text{Inventory Valuation} = 310
\][/tex]
### Conclusion:
Thus, in applying the lower of cost or market rule, the inventory for rehab equipment would be valued at \[tex]$310.
Answer: \$[/tex]310 (Option: \$310)
