Answered

Lampshire Inc. is considering using stocks of an old raw material in a special project. The special project would require all 180 kilograms of the raw material that are in stock and that originally cost the company $2,466 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $6.75 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $6.05 per kilogram if it were not used in the special project. The sale of the raw material would involve delivery to the purchaser at a total cost of $62 for all 180 kilograms. What is the relevant cost of the 180 kilograms of the raw material when deciding whether to proceed with the special project

Answer :

Kolawole845

Answer:

$1,153

Explanation:

The relevant of a materials that are already in stock is the higher or the resale value and the value in other use.

The resale value here represent opportunity cost- the amount that would be forgone should the material be used internally.

The value in other use is the worth of the material if they were converted for use for any other purpose. This was not given in the question and not applicable in the question

Hence the relevant cost of the material would the opportunity cost less the savings in transport cost

Cost = (180 × $6.75) - $62 = $1,153

Note that the historical cost of $2,466 is sunk cost and not relevant

Other Questions