Step 1: Designated Market Value ABC Replacement Net Realizable NRV less Designated Cost Value (Ceiling) Normal Market Profit Value Margin (Floor) Spinach $88,000 $120,000 $104,000 Carrots 90,000 100,000 70,000 Cut beans 45,000 40,000 27,500 Peas 36,000 72,000 48,000 Mixed vegetables 105,000 92,000 80,000 Step 2: Lower of cost or market Cost Designated Lower-of-cost-or-market by Market Individual Major Total items Categories Inventory Frozen Spinach $80,000 $104,000 Carrots 100,000 90,000 Cut beans 50,000 40,000 Total frozen 230,000 234,000 Canned Peas 90,000 48,000 Mixed vegetables 95,000 92,000 Total canned 185,000 140,000 Total $415,000 $374,000 1. Apply LCM to each individual item in inventory such as Spinach. 2. Apply LCM to logical inventory categories, such as Frozen Food and Canned Food. 3. Apply LCM to the entire inventory as a group