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Hello John,
Kindly tell me why the current cost ($10) was used to multiply the company need of 2000kg in test 2 and in test 4 it was the amount the materials could be sold for($9) that the current inventory (1500)was multiplied by.
I don’t get the logic.
I was thinking that in test 2, the current cost ($10) would be multiplied by current inventory1500kg
ThanksIn question 2, the material is in regular use and therefore needs to be replaced (at the current cost). The contract needs 2,000 kg so that it why it is multiplied by 2000.
In question 4, the material has no other use so for the 1500 in inventory there is an opportunity cost of the lost revenue of $9. The other 500 needed will have to be purchased at the current cost.
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