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Inventory LCM: Applying lower of cost or market

What approaches may be used in applying the lower of cost or market procedure? Which is normally used and why?

Solution Preview

The lower of cost or market rule can be used either by apply it directly to each individual item in inventory, to each category of inventory or to the total of the inventory as a whole.

If you use a major category or inventory as a whole, increases in market prices in some items will offset the decreases in market prices of other items.

For example:
.............................................cost..........market
Green items.......................$50.00..........$70.00
Orange items......................$30.00.........$20.00
Color category....................$80.00.........$90.00

Round items......................$90.00...........$40.00
Square items.....................$95.00............$85.00
Shape category.................$185.00........$125.00

Overall ...

Solution Summary

Your tutorial is 223 words and includes three exhibits to show you the three potential approaches to applying the lower of cost or market. The most common method is discussed along with a reason most do it that way.

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