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Is it true that in the case of material we have these situations to consider regarding relevant costing…
1) If material is in stock and we can replace material then we can purchase new material
[Relevant cost = Current Purchase Price]2) If material is not in stock but we can replace material then we can purchase new material
[Relevant cost = Current Purchase Price]In both of the above situations (1) and (2); relevant costs remain the same?
3) If material is in stock but we cannot replace material then we cannot purchase new material rather we have to see the alternative use of existing material
[Relevant cost = Opportunity cost]4) If material is not in stock and we cannot replace material then we cannot purchase new material rather we have to see the alternative use of existing material
[Relevant cost = Opportunity cost]In both of the above situations (3) and (4); relevant costs remain the same?
5) Opportunity cost is calculated but it could be one of the two situations either:
i) Existing material has no other use [Relevant cost = scrap proceeds] or
ii) Existing material has other use [Relevant cost = (Higher of) = other use or lost contribution]Please correct me If I am wrong and explain whether is there any difference between lost contribution and scrap proceed because according to me they both are the same?
What you have written is correct.
Although the treatment of lost contribution and lost scrap proceeds is the same, they are different things. Lost contribution is the profit before fixed overheads that could have been earned had the material been used elsewhere. Lost scrap proceeds is the lost money that could have been earned as selling it as scrap.
Have you watched my free lectures on this?
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