The correct answer is: D. Cost or market price, whichever is lower.
The cost of raw materials is the price paid for them, plus any costs incurred in bringing them to their present location and condition. The market price of raw materials is the price at which they could be sold in the open market.
Under the lower of cost or market value (LCM) method, inventory is valued at the lower of its cost or its market value. This method is used to ensure that inventory is not overstated on the balance sheet.
If the market value of raw materials is lower than their cost, then the raw materials should be valued at their market value. This is because the company would not be able to sell the raw materials for more than their market value.
If the market value of raw materials is higher than their cost, then the raw materials should be valued at their cost. This is because the company would be able to sell the raw materials for more than their cost.
The LCM method is a conservative method of accounting. It ensures that inventory is not overstated on the balance sheet. This is important because it can affect the company’s financial statements and its ability to obtain financing.