Otool Incorporated is considering using stocks of an old raw material in a special project. The special project would require all 240 kilograms of the raw material that are in stock and that originally cost the company $2,112 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $9.25 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $8.35 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 $71 for all 240 kilograms. What is the relevant cost of the 240 kilograms of the raw material when deciding whether to proceed with the special project?
A) $1,933
B) $2,004
C) $2,220
D) $2,112

Question

Quizplus · Accepted Answer

The relevant cost is the opportunity cost of using the raw materials instead of selling them. Selling price per kilogram is $8.35, so for 240 kilograms, it would be 240 * $8.35 = $2,004. Subtract the delivery cost of $71 to get $2,004 - $71 = $1,933.

Otool Incorporated Is Considering Using Stocks of an Old Raw