Instruction 10-6
a Buyer for a Manufacturing Plant Suspects That

question 41

Multiple Choice

Instruction 10-6
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 similar various 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.
$$\begin{array} { c c c r } \text { Material } & \begin{array} { c } \text { Primary } \\\text { Supplier }\end{array} & \begin{array} { c } \text { Secondary } \\\text { Supplier }\end{array} & \text { Difference } \\\hline 1& \$ 55 & \$ 45 & \$ 10 \\2 & \$ 48 & \$ 47 & \$ 1 \\3 & \$ 31 & \$ 32 & - \$ 1 \\4 & \$ 83 & \$ 77 & \$ 6 \\5 & \$ 37 & \$ 37 & \$ 0 \\6& \$ 55 & \$ 54 & \$ 1 \\\hline \hline \text { Sum: } &\$309&\$292&\$17\\\text { Sum of Squares. } & \$ 17,573 & \$ 15,472 & \$ 139\end{array}$$
-Referring to Instruction 10-6,the buyer should decide that the primary supplier is

• A)not overcharging because there is strong evidence to prove otherwise.
• B)not overcharging because there is insufficient evidence to prove otherwise.
• C)overcharging because there is strong evidence that this is the case.
• D)overcharging because there is insufficient evidence to prove otherwise.

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Definitions:

Labor-Hour

A labor-hour represents an hour of work performed by an employee, typically used as a basis for allocating labor costs or measuring productivity.

Manufacturing Overhead

All indirect costs associated with the manufacturing process, including but not limited to utilities, maintenance, and factory equipment depreciation.

Underapplied

A situation in cost accounting where the allocated or applied costs are less than the actual costs incurred.

Overapplied

Overapplied refers to the situation where the amount of overhead allocated to products is more than the actual overhead incurred.