Final answer:
Level 1 inventory is the parent to Level 2 raw materials and is not their child; it is the immediate predecessor to the finished product, making the correct answer option A (II and III).
Step-by-step explanation:
When analyzing a bill of materials that designates Level 0 as the Finished Good, Level 1 as the Subassembly (Work in Process), and Level 2 as Raw Materials, the correct statement about Level 1 inventory includes that it is the parent of the Level 2 raw materials and not the child of the Level 2 raw materials. Therefore, the answer to the question is:
The Level 1 inventory is the parent of the Level 2 raw materials and not the child of the Level 2 raw materials, which corresponds to options A (II and III).
A bill of materials is often arranged hierarchically and represents the relationship between the finished product and the components required to construct it. In this structure, the finished product, labeled as Level 0, sits at the top of the hierarchy. Immediately below this, at Level 1, are the subassemblies or work in process, which are used to compile the final product. These subassemblies themselves are made from raw materials, which are classified as Level 2 items. Level 1 inventory therefore represents a transitional stage between the finished good and its raw materials. It is 'the child' of the finished good because it is derived from and contributes to the completion of the final product.
Simultaneously, it is 'the parent' of the raw materials because these materials are combined or processed into the subassemblies at Level 1. To clarify, the Level 1 inventory does not descend from Level 2; rather, the raw materials at Level 2 lead up to and feed into the Level 1 inventory, making the Level 1 inventory their parent, not their child.