When actual cost is not available for measuring one unit of inventory, which of the following is a common approximation?

When actual cost is not available for measuring one unit of inventory, which of the following is a common approximation?

• A. Value at most recent prices
• B. Value at oldest prices
• C. Value at average price
• D. Value at current selling price

Answer: (A)

When you can’t determine the exact cost of a specific unit, use the most recent price paid for a similar item as a practical proxy for cost. This reflects the current cost to replace the unit and is more relevant than older prices, which may no longer represent what it would cost today. Using an average price would dilute the cost for that particular unit, and using the current selling price mixes cost with market selling value, which isn’t appropriate for measuring inventory cost.

When you can’t determine the exact cost of a specific unit, use the most recent price paid for a similar item as a practical proxy for cost. This reflects the current cost to replace the unit and is more relevant than older prices, which may no longer represent what it would cost today. Using an average price would dilute the cost for that particular unit, and using the current selling price mixes cost with market selling value, which isn’t appropriate for measuring inventory cost.