medium · Financial Accounting assets
Titan Tech uses the average-cost method for its raw materials. A specific chemical has a cost of $5,000. Due to oversupply, its replacement cost is $4,200. The estimated selling price of the finished product this chemical makes is $12,000, and the costs to convert and sell are $4,000.
Should Titan write down the raw material?
- No, because the finished product's NRV ($8,000) exceeds its cost
- Yes, it must be written down to the replacement cost of $4,200
- No, because US GAAP only requires write-downs for finished goods
- Yes, it must be written down to $4,000
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