- This topic has 3 replies, 2 voices, and was last updated 11 months ago by John Moffat.
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1) If material is in stock but it has NO OTHER USE then we have only two situations:
we can sell the material in stock at scrap value [RC = NRV]
we simply cannot sell the material in stock [RC = 0]
2) If material has OTHER USE then we have two situations:
material not in stock needs to be purchased [RC = Purchase new material]
if material has any opportunity cost like whether it can be used in another project and only lost contribution is taken into account [RC = Opportunity cost]
Your statement (1) is correct.
As far as (2) is concerned, then if the material is in regular use the relevant cost is the current purchase price (whether or not there is any in inventory).
If using the material means losing some existing production then the relevant cost is the lost contribution.
Have you watched my free lectures on relevant costing?
Yes, I have seen your lecture on this.
But I am still having problems with questions involving opportunity cost. I am unable to identify them at first completely, and secondly, the calculation of lost contribution is also difficult to calculate for me.
Can you please give me an example that involved opportunity cost based on limited labour hours?
As regards to the opportunity cost or lost contribution is only relevant when we move material or labour from the alternative project for which the material & labour is employed and moving material & labour from that existing project will cause a loss and therefore it is the relevant cost because we have to leave another project so that we can employ the material & labour into the new relevant project?
What you have written in your final paragraph is correct.
With regard to examples, every question is different. Best is to tell me a question in your Revision Kit that is causing you a problem and then I will explain.
Again, have you watched my free lectures on relevant costing?