Explanation of the Topic...

Lower of Cost or Market (LCM)

Print  Email
Facebook Logo

Lower of Cost or Market - Quick and Easy




An easy way to apply the lower of cost or market (or to check your calculations) is to arrange the four relevant amounts (cost, replacement cost, NRV, and NRV minus normal profit) in descending order of amount. The third amount is the lower of cost or market, unless cost is lower. (When cost is the fourth amount, the lower of cost or market is the fourth amount.) To illustrate:



Product A's relevant amounts arranged from highest to lowest:

#1 $7.00 NRV

#2 $6.00 Cost

#3 $5.00 NRV - normal profit

#4 $4.50 Replacement Cost



The lower of cost or market is the third amount: $5.00 (since cost is not lower).





Product B's relevant amounts arranged from highest to lowest:

#1 $5.00 Cost

#2 $3.50 NRV

#3 $3.00 Replacement Cost

#4 $2.60 NRV - normal profit



The lower of cost or market is the third amount: $3.00 (since cost is not lower).





Product C's relevant amounts arranged from highest to lowest:

#1 $9.50 NRV

#2 $8.50 Replacement Cost

#3 $8.00 Cost

#4 $7.10 NRV - normal profit



The lower of cost or market is the third amount: $8.00 (since cost is not lower).





Product D's relevant amounts arranged from highest to lowest:

#1 $9.00 Replacement Cost

#2 $8.75 Cost

#3 $8.50 NRV

#4 $6.50 NRV - normal profit



The lower of cost or market is the third amount: $8.50 (since cost is not lower).





Product E's relevant amounts arranged from highest to lowest:

#1 $3.00 NRV

#2 $2.50 Replacement Cost

#3 $2.20 NRV - normal profit

#4 $2.00 Cost



The third amount is $2.20. However, cost is lower. Therefore, the lower of cost or market is $2.00.


To recap this quick and easy approach to finding the lower of cost or market...


      1. Arrange the four relevant amounts in descending order.
      2. The lower of cost or market is the third amount, unless cost is lower.




   Download and Print our Complete Learning Package
Complete PDF Package

Now you can highlight, make notes, and study away from your computer.
Includes bonus materials not available on our website.
Click Here to Learn More




  Part 1    Part 2    Part 3    Part 4    Part 5        To Top





Accounting
Cheat Sheet

Receive our popular 15-page
Cheat Sheet at no cost when
you join our free newsletter:


First Name:
Email Address:
60,000+ have already joined
We keep your email address
100% safe and secure.

Download our new
Business Forms
Learn more about a
Career in Accounting
Start a discussion in our Accounting Forum






Why AccountingCoach.com?

the accounting coach

AccountingCoach.com is designed to help people without an accounting background easily understand accounting concepts at no cost.


By investing thousands of hours, we have created clear and concise accounting information for both business people and students of all ages.


We understand how difficult accounting can be. That's why each accounting topic includes a clear explanation, reinforcing drills, Q&A, puzzles, dictionary of terms, etc.


» Read 1,200+ Visitor Testimonials