CAF-5 · Chapter 14 · Question 3 of 10
A company has 1,000 kg of Material X in inventory, which was purchased last year for Rs. 50 per kg. This material is in continuous and regular use by the company. If Material X is used for a new special one-off contract, what is its relevant cost per unit?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) The current replacement cost of purchasing new material from the market.
Explanation
When a material is in continuous/regular use, any units taken from inventory for a special job will simply have to be replaced to meet the ongoing regular demand. Therefore, the relevant cost is the current replacement price.
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