Question
You have a manufacturing client that uses FIFO to value its raw materials inventory. The company intruduced a new product this year that uses a
You have a manufacturing client that uses FIFO to value its raw materials inventory. The company intruduced a new product this year that uses a raw material product that is subject to tremendous price variability. A large quantity of this material was purchased at the beginning of production. While it has been held, the replacement cost of the product has varied between 80% and 120% of original cost. Your client wonders how to account for the product value at year end given this kind of variability. Provide guidance for how to value inventory that may be below cost at year end or above cost at year end. After obtaining the guidance, provide a short conclusion that would explain to the client when it may be required to write the inventory down and if it will ever be allowed to recognize the increase in the inventory value above original cost.
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