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Question: Push Co would also need a computerised system called ‘Swipe 2’. The current market price of Swipe 2 is 10800, although T Co has an older version of the system, Swipe 1, in inventory which could be modified at a cost of 4600. T Co paid 5400 for Swipe 1 when it ordered it in error two months ago and has no other use for it. The current market price of Swipe 1 is 5450, although if T Co tried to sell the one it has, it would be deemed to be used and therefore only worth 3000.
I calculated the answer to be 10050 by adding the current market price of 5450 to the modification cost of 4600, and since 10050 is lower than 10800 it is the relevant cost. What is the thought process involved in relevant costing in arriving at the answer.
The current market price of a Swipe 1 is of no relevance because they are not buying a Swipe 1.
If they do not install the new telephone system then they will sell the Swipe 1 and receive 3,000.
If they do install the new system and modify the Swipe 1, then they will have an opportunity cost of the lost sale proceeds (3,000) and the cost of modifying (4.600). So the total relevant cost is $7,600.
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