GAAP requires inventory to be valued at the lower of cost to market. LCM can be calculated by using the item-by-item method or the major-category method.
1. The item-by-item method - This methods will look at each item and determine the LCM.
Example:
2.The major-category method - Under this method, each category is grouped and the lower of the cost to market is taken.
Example - Assume that our prior example represents a category.
Under this method the LCM should be $850.
