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.
Inventory Analysis

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