Relevant cost

Firstly, the will not be buying 1,500 kg because 945 kg will be taken from the inventory. So they will only be buying 1,500 - 945 = 555 kg and for these they will have to pay $4.25 per kg.. The 945 kg in inventory would otherwise have been sold as scrap for $2.75 per kg.. If instead they are used for the contract then they will lose the income that they would otherwise have received (and opportunity cost). I do suggest that you watch my free lectures on relevant costing in which all of this is explained. The lectures are a complete free course for Paper PM and cover everything needed to be able to pass the exam well.

You are welcome :-)