• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar
Free ACCA & CIMA online courses from OpenTuition

Free ACCA & CIMA online courses from OpenTuition

Free Notes, Lectures, Tests and Forums for ACCA and CIMA exams

  • ACCA
  • CIMA
  • FIA
  • OBU
  • Books
  • Forums
  • Ask AI
  • Search
  • Register
  • Login
  • ACCA Forums
  • Ask ACCA Tutor
  • CIMA Forums
  • Ask CIMA Tutor
  • FIA
  • OBU
  • Buy/Sell Books
  • All Forums
  • Latest Topics

20% off ACCA & CIMA Books

OpenTuition recommends the new interactive BPP books for September 2025 exams.
Get your discount code >>

Relevant cost

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Relevant cost

  • This topic has 5 replies, 2 voices, and was last updated 4 years ago by John Moffat.
Viewing 6 posts - 1 through 6 (of 6 total)
  • Author
    Posts
  • March 14, 2021 at 2:53 pm #614416
    Faizahmad1009
    Participant
    • Topics: 34
    • Replies: 20
    • ☆☆

    Good day, Sir John!

    1) If the material is in stock but it has no other use then the material should be sold off rather than being kept where relevant cost would be [Scrap value]

    2) BUT if the material is in stock but it has no other use & no alternative then the material relevant cost would be [purchase cost + opportunity cost]

    3) Opportunity cost is the lost contribution BUT it is the opportunity lost which is whether we can use the material in the contract or it could be sold off. [Is that correct?]

    Can you please confirm whether these statements are correct or not?

    March 15, 2021 at 8:51 am #614447
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    Statement 1 is true – the relevant cost is the scrap value.

    Statement 2 is not true – the relevant costs is the scrap value (which is the opportunity cost).

    Statement 3 – see statement 2.

    Have you watched my free lectures on this because the lectures cover it all. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.

    March 15, 2021 at 4:02 pm #614480
    Faizahmad1009
    Participant
    • Topics: 34
    • Replies: 20
    • ☆☆

    Yes, I have watched your lectures thoroughly. 🙂

    (Question)
    If company ABC needs 200kgs of material X where they have 100kgs currently in inventory. Current Puchase Price is $22/kg AND it has scrap value of $15/kg

    *Material X is no longer used and has no alternative use in the business.
    (Question end)

    According to what you’ve said that “if the material is in stock but it has no other use & no alternative then the material relevant cost is [scrap value] which is opportunity cost”

    BUT the relevant cost is $3700 including purchase price for the 100Kgs at $22 plus opportunity cost for 100Kgs at $15

    CONFUSED here!

    March 16, 2021 at 9:27 am #614504
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    They have 100kgs in inventory. If they did not use them on the new contract then they would scrap them and receive $15 per kg.. Therefore the cost of using them for the contract is the lost $15 per kg (the opportunity cost).

    The contract needs 200 kgs, so because there are only 100 kgs in inventory they will need to buy the other 100kg which will cost them $22 per kg.

    March 16, 2021 at 9:36 am #614511
    Faizahmad1009
    Participant
    • Topics: 34
    • Replies: 20
    • ☆☆

    I understood your answer 🙂

    BUT SIR, it has made my statement 2 correct according to the situation that “if the material is in stock [100kg] but it has no other use & no alternative then the material relevant cost would be [purchase cost + opportunity cost]”.

    Purchase cost here is the 100kgs material that we needed for the contract & opportunity cost that we lost of 100kgs by selling them off as scrap.

    CORRECT?

    March 16, 2021 at 10:00 am #614514
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 54699
    • ☆☆☆☆☆

    No, it is not correct at all, and you obviously did not understand my answer.

    If the material is in inventory and has no other use, then the relevant cost is the lost scrap proceeds. They have 100kg in inventory, the scrap proceeds are $15 per kg, and therefore the relevant cost of using those 100 kg is 100 x $15 = $1,500.

    If they only needed 100 kg for the contract then this would be the final cost.

    But they need 200 kg for the contract and only have the 100 kg in inventory. Where do you think the extra 100 kg are going to come from??? These other 100 kg will have to be bought and the cost of buying them is 100 x $22 = $2,200.

  • Author
    Posts
Viewing 6 posts - 1 through 6 (of 6 total)
  • You must be logged in to reply to this topic.
Log In

Primary Sidebar

Donate
If you have benefited from our materials, please donate

ACCA News:

ACCA My Exam Performance for non-variant

Applied Skills exams is available NOW

ACCA Options:  “Read the Mind of the Marker” articles

Subscribe to ACCA’s Student Accountant Direct

ACCA CBE 2025 Exams

How was your exam, and what was the exam result?

BT CBE exam was.. | MA CBE exam was..
FA CBE exam was.. | LW CBE exam was..

Donate

If you have benefited from OpenTuition please donate.

PQ Magazine

Latest Comments

  • DeborahProspect on ACCA SBR Specimen Exam 2 Question 1
  • darshan.69 on Chapter 9 Pension Schemes TX-UK FA2023
  • darshan.69 on Chapter 9 Pension Schemes TX-UK FA2023
  • Jarzin on The Finance Function in the Digital Age – CIMA E1
  • dkessilfie on FM Chapter 1 Questions – Financial management objectives

Copyright © 2025 · Support · Contact · Advertising · OpenLicense · About · Sitemap · Comments · Log in