Question

The Daily Grind sells coffee makers. Its inventory of coffee makers without timers cost $20,000 and is now valued at $10,000. Its inventory of coffee makers with timers cost $35,000 and is valued at $35,000. What is the value of the Daily Grind's inventory using LCM?

Answer 1

$45,000

Step-by-step explanation:

LCM (lower of cost or market) is an inventory valuation method that uses the lower figure between the cost of purchase of an inventory, and the price at which it can be currently replaced in the market, as the carrying amount of the inventory.

Accordingly, using LCM, the value of Daily Grind's inventory

= lower value of (inventory of coffee makers without timer) + (inventory of coffee makers with timer)

= 10,000 + 35,000

= $45,000