The Lower of Cost or Market of Inventory: Definition & Method


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question 1 of 3

Which of the following requires that on hand inventory at the end of an accounting period be valued at the lower of cost or market?

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1. What is the acquisition price of inventory called?

2. What is the replacement cost of inventory called?

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About This Quiz & Worksheet

The LCM (Lower of Cost or Market) method is an accounting principle that uses a balance between the cost of a product and its market value. The quiz, which can be used before and after the lesson, covers topics including the acquisition price and replacement cost of inventory.

Quiz & Worksheet Goals

Use these assessment tools to track your understanding of:

  • The principal that says on hand inventory should be valued at the lower of cost or market each accounting period
  • The total cash value of the inventory on hand
  • Real life circumstances of inventory valuation based on the LCM rule

Skills Practiced

This worksheet and quiz let you practice the following skills:

  • Making connections - use understanding of the concept of the sales price of an item minus the selling costs associated with that item
  • Problem solving - use acquired knowledge to solve inventory valuation practice problems
  • Information recall - access the knowledge you've gained regarding the amount that would have to be paid to replace a unit of inventory with an identical product

Additional Learning

Review the lesson on The Lower of Cost or Market of Inventory: Definition and Method to learn more about this accounting practice. The lesson addresses the following objectives:

  • Define LCM
  • Define inventory valuation
  • Understand cost
  • Identify the Net Realizable Value (NRV)