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Dear Tutor,
X Co intends to print a 1-off catalogue that requires 120 boxes of paper & has 50 boxes in inventory from a previous job that cost $17 two years ago. The boxes could be sold for $14 each or could be purchased in the market for $22 each. [BPP PM Workbook pg. 215]
What is the relevant cost of the paper?
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Purchase remaining boxes: 70x $22 = $1,540
Scrap proceeds ‘foregone’ of boxes held in inventory: 50x $14 = $700
Total = $2,240
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Q: Why is the scrap cost a ‘Relevant Cost?’-Robbie
In future you must ask in the Ask the Tutor Forum if you want me to answer. This forum is for students to help each other.
It is an opportunity cost. If they did not print the catalogue they would sell the boxes and receive $14 each. By using them for the catalogue they lose income that they would otherwise receive.
I do suggest that you watch my free lectures on relevant costing. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.
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