Relevant material cost
Relevant material cost reflects the future consequence of using material for the option under consideration. Material that must be bought has the relevant purchase cost. Material already held and regularly replaced may have a replacement consequence; material with no future use may instead have a disposal or alternative-use benefit forgone. Historical purchase cost is sunk. Check availability, condition, substitute uses and whether the option changes purchases before choosing a valuation.
Worked example
Ten units already held are regularly used and will need replacing at $7 each if used on a new order. The relevant material consequence is $70, not their $4 historical cost.
Common mistake
Do not use replacement cost automatically for obsolete material that would never otherwise be replaced, or ignore a genuine alternative use.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | PM | Direct | September 2026–June 2027 |