Question

Schemm Inc. regularly uses material F04E and currently has in stock 458 liters of the material for which it paid $2,620 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $5.22 per liter. New stocks of the material can be purchased on the open market for $5.92 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 650 liters of the material to be used in a job for a customer. The relevant cost of the 650 liters of material F04E is:

Answer 1

$3,848

Step-by-step explanation:

current stock 458 liters of F04E

The relevant cost must be calculated using the current market value, not any kind of resale value (as surplus material).

relevant cost for 650 liters of F04E = 650 liters x $5.92 per liter = $3,848

Relevant costs are defined as the costs that are necessary to be considered in order to make a decision which involves additional (diminished) amounts to be paid for something. In this case, if the company needs to purchase F04E it will pay the market price.