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A Co. in the process of preparing a quotation for a special job which will require 120 units of material T which is currently in stock at 40$ per unit. Replacment of this material 68 usd. The material has no other use but to be disposed at a cost of 160$. What is the relevant cost?
If they do not do the special job, then they would sell it at 160.
If they do do the special job they will not get the 160 and so the relevant cost is the 160 that they will lose by doing the job.
But this 160$ refers to the cost of disposal.
It is not income. The answer says 160 usd is an avoidable cost.
Ooops – sorry I read too fast.
The fact that it would have to be disposed of at a cost of 160 if they did not do the job means that doing the job saves them 160 (not costs them 160)
Sorry 🙁
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