F.Ltd has to incorporate 100kgs of material X into a special order for a customer. Data for material X is as follows:
Quantity in Inventory: 75kgs
Original Purchase Price $2/kg
Current Purchase price $3/kg
If not used on the special order all existing inventory of X must be disposed of at a cost to F ltd of $0.50/kg.
What is the relevant cost of material X for the special order?
A) 37.50 cost
B) 37.50saving
C) 75.00 cost
D) 187.50 cost
Any assistance will be greatly appreciated as I cannot obtain an answer here.
FIA Forums
MA 2 - Relevant cost
Think it's A
Reasoning benefit of not having to pay to dispose of material X =
$0.5 X 75=$37.5 saving
25 x$3 =$75 cost for remaining material to be bought.
Overall cost = $37.5 cost.
Think this is correct. Hopefully someone can confirm. Hope this helps.
Thank you.
I hope as you said someone can give clarity. My lecturer said there is no right answer supplied by ACCA in the options given.
Confirmation of answer here for anyone following the thread-
https://opentuition.com/topic/question-on-relevant-costing/
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