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I have a question relating to short-term decision.
if the materials required have not already been acquired, it is relevant cost will be its current or future market price
if the materials have been acquired and regularly used its relevant cost will be also current and future market price(so called replacement cost)
if the materials have been bought but not regularly used-in this case two important cases emerge which one of them will be OTHER USE AVAILABLE and another will be SCRAPPED NOT USED.
OTHER USE AVAILABLE -relevant cost=Higher of value in other use or disposal or scrap value-also called NRV
SCRAPPED not used-relevant value will be scrap value or disposal value.
My question here is that does scrap or disposal value mean Deprival value?
However, Becker book says that value in use is the value to the business of the asset that is already owned.this is the higher of its NRV.i confused this part when the points break down into two parts above mention other use available and scrapped not used.
I always think it is dangerous to learn ‘rules’ for relevant costing. If you understand the logic of what we are trying to do then the problem is then just a question of reading the question carefully.
Deprival value is what the cost is to the company of taking inventory away in order to use in the new contract.
If the material is being used regularly, then taking it away means it has to be be replaced and so the cost is the cost of replacing.
If the material has not other use them taking it away means that it can’t be sold for scrap and so the cost is the lost scarp proceeds.if the materials required have not already been acquired, it is relevant cost will be its current or future market price-
if the materials have been acquired and regularly used its relevant cost will be also current and future market price(so called replacement cost)
I can get the logic behind these mentioned above but coming to alternative use and not used seems to be confusing.
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