Lower of Cost or Market (LCM)
1. At the end of each period, inventory is measured at the lower of cost or market.
2. Market = Current replacement cost
3. If current replacement cost > Net realizable value (NRV) of inventory, then
Market = Net realizable value (NRV) of inventory
4. If current replacement cost < (NRV – Normal profit margin), then
Market = NRV – Normal profit margin
5. Net realizable value (NRV) = Selling price – Costs to complete and sell