More Simple Relevant Costs Questions Or Examples

December 6th, 2009 Comments off
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Below are simple examples on relevant costs for readers to practice to understand relevant costs.

Question No:1

ABC Ltd wishes to know the relevant cost of material X for a special contract. The contract will need 200 litres of Q.

Currently in stock 150 litres
Original cost of Q in stock $2 per litre
Current purchase price of Q $4 per litre

If not used on the contract stocks of Q would be scrapped for proceeds of $1 per litre

Answer:

Relevant costs:-

Cost of purchasing 50 litres of Q=(50x$4) =$200 plus Opportunity cost of scrap(150 litres x$1)   =$150 =$350
Question No.2:

ABC Ltd requires 400kg of material D for a job it is about to start. 300 kgs are currently in stock which cost $5 per kilogram three months ago. The current purchase price of material D is $4 per kilogram. If the material D that the company currently holds is not used in the job in question it will be scrapped a cost of $0.50 per kilo gram. What is the relevant cost of the 400 kgs of material D?

Answer:

Relevant costs=300x$0.50 + 100x$4=$550

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