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?

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Definitions:

ANOVA F Test

A statistical test used to determine if there are significant differences between the means of three or more groups.

Chi-squared Test

A statistical hypothesis test used to determine whether there is a significant difference between expected frequencies and observed frequencies in one or more categories.

Nominal Data

A type of data that consists of names, labels, or categories without any implied order or ranking among them.

Technique

A specialized procedure or skill set used to accomplish a specific task effectively.