Question

otool incorporated is considering using stocks of an old raw material in a special project. the special project would require all 170 kilograms of the raw material that are in stock and that originally cost the company $2,036 in total. if the company were to buy new supplies of this raw material on the open market, it would cost $8 per kilogram. however, the company has no other use for this raw material and would sell it at the discounted price of $7.00 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 $84 for all 170 kilograms. what is the relevant cost of the 170 kilograms of the raw material when deciding whether to proceed with the special project? multiple choice $1,305 $1,106 $1,309 $1,190

Answer 1

The relevant cost of the 170 kilograms of raw material when deciding whether to proceed with the special project is $1,305.

Step-by-step explanation:

The relevant cost of the 170 kilograms of raw material when deciding whether to proceed with the special project is calculated by comparing the cost of using the old raw material versus buying new supplies.

If the company uses the old raw material, the cost would be the original cost of $2,036 minus the proceeds from selling the raw material at the discounted price of $7.00 per kilogram, minus the delivery cost of $84. This total cost would be $1,305.

Therefore, the relevant cost of the 170 kilograms of the raw material is $1,305.