B DeLoan Corporation uses a six-month moving average to calculate material scrap rate. Both the auditor and technical analyst concur with the use of this procedure. Both have also validated the available data.
Month January February March April May June July
Scrap $6,000 $5,500 $4,200 $6,500 $5,800 $5,300 $5,700
Material Required $100,000 $100,000 $69,000 $105,000 $89,000 $88,000 $99,000
1. What would you estimate the scrap rate to be using a 6-month moving average?
2. Using that scrap rate, what would be your material estimate for a new contract for the item when the material required for the finished product is $90,000?
3. Is your estimate in Question 2 reasonable?