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.
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 |