The Edge Company makes specialty skates for the ice skating circuit. On December 31, 2010, the company had (a) 500 skates in finished goods inventory and (b) 2,000 blades at a cost of $15 each in raw materials inventory. During 2011, Edge Company purchased 45,000 additional blades at $15 each and manufactured 20,000 pairs of skates.
1. Determine the unit and dollar amounts of raw materials inventory in blades at December 31, 2011.
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, 2011, if the ending blade raw material inventory is cut in half.