A Particular Production Process Requires Two Types of Raw Materials

question 117

Essay

A particular production process requires two types of raw materials to produce the end product. Each unit of finished product requires three units of raw material A and 2 units of raw material B and processing costs of $35. The following provides information on inventories at year-end:
$$\begin{array} { | l | r | r | r | r | } \hline \text { Inventory item } & \text { \# units } & \text { Cost per unit } & \begin{array} { r } \text { Replacement } \\\text { cost }\end{array} & \begin{array} { r } \text { Net realizable } \\\text { value }\end{array} \\\hline \text { Finished product } & 800 & \$ 181 & \mathrm { NA } & \$ 161 \\\hline \text { Raw material A } & 150 & 10 & \$ 17 & \text { NA } \\\hline \text { Raw material B } & 110 & 58 & 53 & \text { NA } \\\hline\end{array}$$ Required:
a. Evaluate these inventories to determine the amount of write-down, if any.
b. Would your answer change if the replacement cost of raw material A were $11 per unit?

---

Definitions:

Exercise Price

The price at which an option holder can buy (call option) or sell (put option) the underlying security.

Time To Expiration

The duration remaining before an option or other derivative contract ceases to be valid and the holder must exercise their rights.

Stock Price

The cost at which a single share of a company's stock is bought or sold in the market.

Stock Volatility

A statistical measure of the dispersion of returns for a given security or market index, indicating how much and how quickly the value of a security or market index changes.