Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 82

An organization has 1,000 units of a defect item in stock. Per unit, market price is $10; production cost is $4; and the defect selling price is $5. What is the carrying amount (inventory value) of defects at year end?

Answer options

Correct answer: B

Explanation

The carrying amount of inventory is based on the lower of cost or market value. In this case, the cost to produce each defective item is $4, which is lower than the defect selling price of $5, so the inventory value is calculated as 1,000 units multiplied by the production cost of $4, totaling $4,000. The other options do not reflect the correct valuation method for defective inventory.