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A company is evaluating a project that requires 400kg of raw materX. The company has 150kg of X in stock that were purchased six months ago for $55 per kg. The company no longer as any use for X. The inventory of X could be sold for $40 per kg. The current purchase price for X is $53 .
What is the total relevant cost of raw material X for the project?
Ans 19250= (150×40)+(250×53)
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Hello sir
1.My doubt is since relevant cost is choosing the best option here the inventey could be sold for 150×40= 6000 and purchase for 250 ×53= 13250
Isn’t it better sell the 150
2.Releveant costs should be 400 × 53 with the current price
3.How can relevant cost be a combination of purchase and selling price ?
( Your help would be extremely beneficial)I will answer you, but this is not relevant for Paper MA. It is a Paper PM question!
They are using the 150kg that are in inventory, and since there is no other use the relevant cost is the lost sale value of $40 per kg.
The need 400kg and so they have no choice but to buy the other 250kg and pay $55 per kg for them.
(The $55 is not relevant for the 150 being taken from inventory – they are not buying them!)
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Thank u so much sir
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