Lower of Cost or Market (LCM)

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.

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