What is the Lower of Cost or Market (LCM)?
• Both retailers and manufacturers use LCM. • LCM, as applied by retailers, allows store owners to write down the value of their inventories at the time the value of the goods drop — rather than when the item is eventually sold, disposed of, or destroyed. Without LCM, the value “on the books” of retail inventory could be significantly overstated compared to the actual value of the goods “on the shelves.” • Retailers may use the Retail Inventory Method (RIM) to determine the cost of their inventory. Under this method, the retailer accounts for inventory based on its retail sales price, adjusted to cost by applying the retailer’s gross profit ratio. Retailers may also use invoice cost to account for inventories. Regardless of which method is used, the retailer may elect to use LCM. • Retail prices are reduced either because a newer product has been introduced (i.e., computers or software), the goods are damaged, or the product was seasonal and has been permanently put on sale (i.e., win
