Scherer Corporation is preparing a bid for a special order that would require 720 liters of material U48N.The company already has 560 liters of this raw material in stock that originally cost $6.30 per liter.Material U48N is used in the company's main product and is replenished on a periodic basis.The resale value of the existing stock of the material is $5.80 per liter.New stocks of the material can be readily purchased for $6.65 per liter.What is the relevant cost of the 720 liters of the raw material when deciding how much to bid on the special order? (CIMA adapted)
A)$4,592.
B)$4,788.
C)$4,456.
D)$4,176.

Question

Quizplus · Accepted Answer

The relevant cost includes the cost to replace the 560 liters used from stock at $6.65 per liter and the cost to purchase the additional 160 liters needed at $6.65 per liter. Total cost = (560 liters x $6.65) + (160 liters x $6.65) = $4,788.

Scherer Corporation Is Preparing a Bid for a Special Order