TABLE 10-8
a Buyer for a Manufacturing Plant Suspects That

question 163

Short Answer

TABLE 10-8
A buyer for a manufacturing plant suspects that his primary supplier of raw materials is overcharging. In order to determine if his suspicion is correct, he contacts a second supplier and asks for the prices on various identical materials. He wants to compare these prices with those of his primary supplier. The data collected is presented in the table below, with some summary statistics presented (all of these might not be necessary to answer the questions which follow). The buyer believes that the differences are normally distributed and will use this sample to perform an appropriate test at a level of significance of 0.01.
$\begin{array}{crrr}&\text { Primary}&\text { Secondary }\\\underline{\text {Material }}&\underline{\text {Supplier}}&\underline{\text { Supplier }}&\underline{\text {Difference }}\\1 & \$ 55 & \$ 45 & \$ 10 \\2 & \$ 48 & \$ 47 & \$ 1 \\3 & \$ 31 & \$ 32 & -\$ 1 \\4 & \$ 83 & \$ 77 & \$ 6 \\5 & \$ 37 & \$ 37 & \$ 0 \\6 & \$ 55 & \$ 54 & \$ 1 \\\hline \text { Sum: } & \$ 309 & \$ 292 & \$ 17\\\text { Sum of Squares: } &\$ 17,573& \$ 15,472 &\$ 139\end{array}$





-Referring to Table 10-8, what is the 99% confidence interval estimate for the mean difference in prices?

---

Definitions:

Fixed Manufacturing

Costs associated with manufacturing that remain constant, regardless of the level of production, such as rent, salaries, and equipment depreciation.

Flexible Budget

A budget that adjusts or varies with changes in volume or activity, providing a valuable tool for performance evaluation.

Master Budget

A master budget integrates various financial plans and forecasts of a company, serving as a comprehensive financial framework for the upcoming fiscal period.

Direct Materials

Basic materials that can be directly linked to the creation of a product and are essential components of the end product.