Skip to content
Sign inRegister

Ask the Tutor ACCA MA

Question on Relevant costing.

AAvanash4y ago
Pleasant day Sir, Would you kindly assist with answering the question below please? 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) 37.50 saving C) 75 cost D) 187.50 cost
John MoffatJohn MoffatTutor4y ago#1
Why are you attempting a question for which you do not have an answer? You should be using a Revision Kit from one of the ACCA Approved Publishers - they have answers :-) Using the 75kgs in inventory will save disposal costs of 75 x $0.50 = $37.50. The other 25kg will have to be purchased at cost of 25 x $3 = $75. Therefore there is a total cost of 75 - 37.50 = $37.50.
AAvanash4y ago#2
Hi Sir, Thank you so very much for clarity. This was a question given for homework and our lecturer said in the options provided by ACCA, that there was not a correct answer. The answer given to the question is 112.50. Cost= 75.00 + Savings of 37.50 = 112.50 I see the error made. Have a good day. keep safe.
John MoffatJohn MoffatTutor4y ago#3
It seems that you lecturer misread the question and treated the $0.50 as being disposal proceeds. Had that been the case then he/she would have been correct in saying it was $112.50. However the $0.50 is the cost of disposal and not the proceeds of disposal. (The examiner has played the same 'trick' several times :-) )
AAvanash4y ago#4
Hi Sir, Why am I adding the proceeds from disposal to the cost of the material?
John MoffatJohn MoffatTutor4y ago#5
If the question had said that the sale proceeds from disposal were $0.50 per kg then by using the inventory they would have lost the sale proceeds and they would therefore have been an opportunity cost. Here the question does not say they are disposal proceeds. They are costs of disposal and therefore by using the inventory they are saving costs.
AAvanash4y ago#6
Thank you very much. Understood.
John MoffatJohn MoffatTutor4y ago#7
You are welcome :-)
This topic is locked — no new replies.