At Dec. 31,2011 Volkan Co. has outstanding noncancelablepurchase commitments for 40,000 gallons, @ $3.00 per gallon, of rawmaterial to be used in its manufacturing process. The companyprices ots raw material inventory at cost or market, whichever islower.
a) Assuming that rhe market price as of Dec. 31, 2011 is$2.70, instead of $3.30, how would you treat this situation in theaccounts and statements?
b) Give the entry in Jan. 2012, when the 40,000 gallon isreceived, assuming that the situation given in (b) aboveexisted at Dec. 31, 2011, andthat the market price in Jan. 2012was $2.70 per gallon. Give Explaination of Your Treatment.