To apply the lower-of-cost-or-market (LCM) method, we need to look at each inventory item and determine the lower value between its cost and its market value (net realizable value). After that, we will calculate the total inventory value based on the quantities.
Step 1: Calculate the cost for each inventory item.
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JFW1:
- Cost per unit = $32
- Inventory quantity = 85
- Total cost = 85 * $32 = $2,720
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SAW9:
- Cost per unit = $17
- Inventory quantity = 179
- Total cost = 179 * $17 = $3,043
Step 2: Determine the market value (net realizable value) for each item.
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JFW1:
- Market value per unit = $35
- Total market value = 85 * $35 = $2,975
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SAW9:
- Market value per unit = $15
- Total market value = 179 * $15 = $2,685
Step 3: Apply lower-of-cost-or-market to each item.
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JFW1:
- Cost = $2,720
- Market value = $2,975
- Lower of cost or market = $2,720
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SAW9:
- Cost = $3,043
- Market value = $2,685
- Lower of cost or market = $2,685
Step 4: Calculate the total inventory value at LCM.
- Total inventory value = Lower of cost or market for JFW1 + Lower of cost or market for SAW9
- Total inventory value = $2,720 + $2,685 = $5,405
Final Result: The value of the inventory at the lower-of-cost-or-market is $5,405.
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