Accounting Online Program Certification Practice Test

What was the cost of the damaged units of inventory at Lamp before being sold at half the normal price?

1. £25

2. £18

3. £30

4. £14

The correct answer is: £18

To arrive at the cost of the damaged units of inventory for Lamp before they were sold at half the normal price, it is essential to understand how inventory costs are determined and how damage might affect pricing strategies. When inventory is considered, its cost typically includes all expenses incurred to acquire the inventory and prepare it for sale, which could include purchase price, shipping, handling, and any other costs directly associated with getting the inventory ready for sale. In this scenario, since the damaged goods were sold at half the normal price, this suggests that the normal selling price was doubled to reflect the loss in value due to damage. The option indicating £18 as the cost implies a reasonable balance between what the initial cost could be and how much discounting can change commodity pricing. If the original price was £36, selling the damaged units at half would bring them down to £18. This discounting strategy is common for retail businesses facing inventory damage, allowing them to recoup some of their costs while still clearing out unsellable stock. The other values do not suffice as plausible original costs when calculating half their retail value. If the calculation of the damaged units aligns with standard inventory management practices, it creates a clear line of reasoning leading to the conclusion that £18 is