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Hello Sir ! I hope you are having a great day sir.
Sir can you please explain me, in your lecture for relevant costing for materials part, when $7500 ( which is the suck cost ) is not relevant, why have you considered it while totaling them?I am confused…
Please advise me on this issue sir.Beat Regards.
I assume you are referring to example 2 (where it is 7,500 kg, not $7,500).
The original cost was $34,000 and this is irrelevant as it is a sunk cost.
However if the inventory was not being used in the special order then it could be sold for $4.20 per kg.
Therefore it if is used in the order then we lose income that we could otherwise have received (so an opportunity cost) of 7,500 x $4.20.
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