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Hi,
I understand the approach on why 8 – 3 tonnes multiply with market price as relevant cost.
But why when we wanna pick the relevant between 3 tonnes – resold it for 35 selling price = 105 and to complete another job using other materials costing 126 to purchase,
We pick the higher of two, why not the lower of two? What’s the concept or thought process in picking the higher of two?
The job requires 8 tonnes
There is already 3 in stock these could be sold for $35 p tonne or it could be used in another job saving the job $126 – so it is the highest of these two figures that you consider, because it is what you loose by not taking the right decision.
You must watch John’s lecture on relevant costing, if you have watched it once I recommend you watch it again.
IN PM paper
in bpp q no 152-156 ( T CO)
In this question why we wont consider 4000 salary
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