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2.5 Assignment: Mini Case Study

Finished products contain a certain amount of raw material. Herein lies the problem. The engineering team estimated that each refrigerator contains 11.22 pounds of polyurethane foam, an expensive chemical used for insulation. When the refrigerators are shipped, inventory is credited for 11.22 pounds of polyurethane, while 11.22 pounds is simultaneously debited against cost of goods sold as an expense. However, a physical inventory count conducted at the end of the quarter determined that $350,000 of polyurethane was missing. Apparently much more than 11.22 pounds was being consumed in the manufacture of each refrigerator.

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