ACCA PM · Chapter 8 · Question 3 of 10
A one-off contract requires 800 kg of material K. The company holds 500 kg of K in inventory, bought for $4.00 per kg. The current replacement cost is $5.20 per kg and the resale value is $3.10 per kg. Material K is NOT used for any other purpose, and if not used on the contract the inventory would be sold. What is the relevant cost of material K for the contract?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $3,110
Explanation
The 500 kg in inventory would otherwise be sold, so their relevant cost is the lost resale value: 500 x $3.10 = $1,550. The remaining 300 kg must be bought at $5.20: 300 x $5.20 = $1,560. Total relevant cost = $3,110.
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