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sir, could you please help me with this question.
UU Company has been asked to quote for a special contract. The following information about the material needed has been given:Material X: Book valueScrap valueReplacement cost$5.00 per kg$0.50 per kg$5.50 per kgThe contract requires 10 kgs of Material X. There are 250 kgs of this material in inventory which was purchased in error over two years ago. If Material X is modified, at a cost of $2 per kg, it could then be used as a substitute for material Y which is in regular use and currently costs $6 per kg.What is the relevant cost of the materials for the special contract?It is a bit difficult to follow the typing, but I am assuming that the scrap value of material X is $0.50.
If there was no mention of Material Y then if they did not do the contract then they would scrap it for $0.50 per kg.
Alternatively, they could not scrap it (and therefore lose $0.50 per kg) and spend another $2 per kg and use it instead of material Y which would save them $6 per kgUsing it instead of material Y would be better because the net saving would be 6 – 2 – 0.50 = $3.50 per kg.
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