ACCA PM · Chapter 8 · Question 2 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 used regularly in the company's normal production. What is the relevant cost of material K for the contract?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) $4,160
Explanation
Because K is in regular use, any inventory used on the contract must be replaced, so all 800 kg are valued at replacement cost. Relevant cost = 800 x $5.20 = $4,160. The historical cost of $4.00 is a sunk cost.
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