What is the formula used to extend an inventory?

What is the formula used to extend an inventory?

• A. Multiplying the unit cost by the number of units
• B. Dividing total cost by units
• C. Adding unit cost and quantity
• D. Subtracting salvage value

Answer: (A)

Extending inventory means calculating the total value of the stock on hand. The way to do this is to multiply the cost per unit by the number of units on hand. So the extended inventory equals unit cost times quantity on hand. For example, if each unit costs $5 and you have 200 units, the inventory value is $1,000. Dividing total cost by units would give cost per unit, not the total value. Adding unit cost and quantity doesn’t produce a meaningful total for inventory. Subtracting salvage value concerns asset disposal and isn’t used for routine inventory valuation.

Extending inventory means calculating the total value of the stock on hand. The way to do this is to multiply the cost per unit by the number of units on hand. So the extended inventory equals unit cost times quantity on hand. For example, if each unit costs $5 and you have 200 units, the inventory value is $1,000.

Dividing total cost by units would give cost per unit, not the total value. Adding unit cost and quantity doesn’t produce a meaningful total for inventory. Subtracting salvage value concerns asset disposal and isn’t used for routine inventory valuation.