Question

Yehle Inc. regularly uses material Y51B and currently has in stock 460 liters of the material for which it paid $2,530 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $4.55 per liter. New stocks of the material can be purchased on the open market for $5.45 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 720 liters of the material to be used in a job for a customer. The relevant cost of the 720 liters of material Y51B is:

a. $3,924
b. $5,450
c. $3,510
d. $3,276

Answer 1

Answer:

3924

Explanation:

The relevant cost is the price of the actual quantity of materials to be used for the job. Although they can only buy in 1000, the relevant cost is the cost of buying the 720 liters of the material regardless of their surplus or loss.

relevant cost = 720 × 5.45 = $ 3924

Answer 2

Answer:a. $3924

Explanation:

The product Y51B which is in stock was bought for $5.5 , selling at a surplus will be $4.5 , however the firm must consider the replacement cost of the material if it's used for the production and this is the cost that will be used to value Y51B for the new project. Which is $5.45 * 720 units which gives $ 3924