Chapter 9, Problem 9.4BE

Lower of cost or market

• LO9–1

[This is a variation of BE 9–2, modified to focus on the lower of cost or market.] SLR Corporation has 1,000 units of each of its two products in its year-end inventory. Per unit data for each of the products are as follows:

	Product 1	Product 2
Cost	$50	$34
Replacement cost	48	26
Selling price	70	36
Selling costs	6	4
Normal profit margin	10	8

Determine the carrying value of SLR’s inventory assuming that the lower of cost or market (LCM) rule is applied to individual products. What is the before-tax income effect of the LCM adjustment?