Calculating Proper Per Unit Inventory Price Applying LCM Method

When using the Lower of Cost or Market (LCM) method, you value inventory at either the market value or cost value, whichever is lower. In this scenario, the acquisition cost of product Dominoe is $18 and the market value (replacement cost) for product Dominoe is $19.

Since the historical/acquisition cost of $18 is less than the market value of $19, the proper per unit inventory price for product Dominoe applying LCM would be $18. This ensures that the inventory is valued at the lower of the two values, in this case, the historical cost.

Applying the LCM method helps in providing a more conservative estimate of inventory value, ensuring that potential losses are accounted for in the financial statements. It also prevents overvaluation of inventory, which could distort the financial position of the company.

By calculating the proper per unit inventory price using the LCM method, companies can make more accurate financial decisions and maintain transparency in their financial reporting.