United States accounting rules (Accounting Research Bulletin No. 43) require that inventory be carried on the financial statements at the lower of its cost or market value with the market value of the inventory bounded on the upper end by net realizable value and on its lower end by net realizable value less a normal profit margin. In your audit of Jones Company that manufactures microchips for high-end workstations and mini-computers, you determine that a material quantity of the company's chips are currently valued (per the company's costing system) at an amount higher than their net realizable value.

a. Define net realizable value.

b. What types of evidence would the auditor gather to determine that the microchips are overvalued?

c. What arguments could Jones Manufacturing's management advance to defend against a write-down?