- This topic has 3 replies, 3 voices, and was last updated 5 years ago by
.
- Posts
help me with this one also. i got the answer but i just dont understand. if i applied this to previous question that i ask you, i dont get the answer.
Push Co would also need a computerised control system called ‘Swipe 2’. The current market price of Swipe 2 is $10,800, although T Co has an older version of the system, ‘Swipe 1’, in inventory, which could be modified at a cost of $4,600. T Co paid $5,400 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 $5,450, although if T Co tried to sell the one they have, it would be deemed to be ‘used’ and therefore only worth $3,000.
If they buy a Swipe 2 they will spend $10,800 and will sell the Swipe 1 for $3,000. So a net cost of $7,800.
If they instead modify the Swipe 1, they will have an opportunity cost of $3,000 (because they will not be able to sell it) and will also have to spend $4,600 to modify it. So a total cost of $7,600.
This is cheaper than the first option, so this is what they would choose to do and therefore $7,600 is the relevant cost.
This question is on relevant costs. If a company is assessing a business proposal from a retail mall to supply the retail mall meat and other livestock products. And to do this, the company needs to acquire a meat processing plant. Incidentally, the acquisition of the meat processing plant is in the company’s strategic plan for the coming year and the board is currently considering it because customers have been demanding for processed meat in kilograms. Will the cost of the meat processing plant be a relevant cost in assessing whether to accept the retail mall contract?
- You must be logged in to reply to this topic.