Question

Martinez Company's ending inventory includes the following items. Product Helmets Bats Shoes Uniforms Units Cost per Unit 35 $ 57 28 75 49 94 53 39 Market per Unit $ 53 81 98 39 Compute the lower of cost or market for ending inventory applied separately to each product. Per Unit Total Inventory Items Units Cost Market Cost Market LCM Applied to Items Helmets 35 $ 57 $ 53 Bats 28 75 81 Shoes 49 94 98 Uniforms 53 39 39 $ $ 0 $ 0

Answer 1

Lower-of-cost -or-market(method)(LCM):If the cost of replacing an item is lower than the original purchase cost,lower-of-cost -or-market(method) is used to value the inventory.Market,as used in LCM is the inventory's current replacement cost(by purchase or manufacture).

Computation of Lower of cost or market for ending inventory applied separately to each product:

Inventory Units Items Helmets Bats Shoes Uniforms Total (1) (2) (3) (4) (5) Cost($) Market($) Cost($) Market($) LCM applied to items($) (1)*(2) (1)*(3) (lower of (4) & (5) 35 57 1,995 1,855 1,855 28 75 2,100 2,268 2,100 94 4,606 4,802 4,606 53 39 39 2,067 2,067 2,067 10,768 10,992 10,628 53 81 98 49

The amount of market decline of $140($1995-$1,855) may be reported as a separate item in the income statement An alternative is to report the loss as part of the cost of goods sold..Regardless,net income will be reduced by the amount of market decline.

Loss on reduction to LCM...............

Inventory....................................

or,

Cost of goods sold...............

Inventory.........................