Lower of Cost or Market
Definition
An inventory valuation rule requiring stock to be reported at the lower of its historical cost or its current market value, so that likely losses are recognised promptly.
Related Terms in Purchasing & Inventory
Standard Costing
A method that assigns predetermined standard costs to products and then analyses the variances between standard and actual costs. It is widely used in manufacturing for control and pricing.
Bill of Materials (BOM)
A structured list of the raw materials, components and quantities needed to make a finished product. It drives manufacturing cost, inventory planning and procurement.
Cycle Count
A method of checking inventory accuracy by counting a subset of items on a rolling schedule rather than halting operations for a full stocktake. It keeps records accurate with less disruption.
Goods in Transit
Inventory that has left the supplier but not yet reached the buyer. Which party records it depends on the shipping terms, which decide when ownership and risk pass.
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