Racer’s Edge makes specialty skates for the ice skating circuit. On December 31, 2014, the company had (a) 1,500 skates in finished goods inventory and (b) 2,500 blades at a cost of $20 each in raw materials inventory. During 2015, Racer’s Edge purchased 45,000 additional blades at $20 each and manufactured 20,750 pairs of skates.

Required

1. Determine the unit and dollar amounts of raw materials inventory in blades at December 31, 2015.

Analysis Component

2. Write a one-half page memorandum to the production manager explaining why a just-in-time inventory system for blades should be considered. Include the amount of working capital that can be reduced at December 31, 2015, if the ending blade raw materials inventory is cut in half.