under the lower of cost or market rule what amount should chewy report as chocolate 603505

Based on a physical inventory taken on December 31, 2006, Chewy Co. determined its chocolate inventory on a FIFO basis at $26,000 with a replacement cost of $20,000. Chewy estimated that, after further processing costs of $12,000, the chocolate could be sold as finished candy bars for $40,000. Chewy’s normal profit margin is 10% of sales. Under the lower of cost or market rule, what amount should Chewy report as chocolate inventory in its December 31, 2006 balance sheet?

1. $28,000
2. $26,000
3. $24,000
4. $20,000