Question:

After working for an accounting firm for several years, you end up joining a manufacturer of electronic components that go into a variety of consumer products.Because the electronic components require specialized raw materials, including rare earth metals, the firm places noncancelable orders with its primary suppliers up to two years ahead of time at a set price and amount.However, due to turmoil in the world economy, the price of these metals has suddenly fluctuated dramatically.You are concerned you may need to account for this situation.Determine the appropriate accounting for all possible circumstances, citing ASC where appropriate.

Requirement: Interpret the codification paragraph into 'plain English' as best you can.In other words, how would you explain the appropriate accounting treatment to a colleague, boss, or business partner who has a basic understanding of accounting?You may (and are encouraged to) use debits and credits or t-accounts to illustrate the accounting if appropriate.