Question

Narciso Corporation is preparing a bid for a special order that would require 880 liters of material R19S. The company already has 280 liters of this raw material in stock that originally cost $6.10 per liter. Material R19S 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 $5.45 per liter. New stocks of the material can be readily purchased for $6.20 per liter. What is the relevant cost of the 880 liters of the raw material when deciding how much to bid on the special order?

A.

A.

$5,006

B.

B.

$5,456

C.

C.

$4,796

D.

D.

$5,456

Answer 1

Material R19S is used in the company's main product and is replenished on a periodic basis.

Since the material is regularly used by the company, taking any quantity from the stock would lead to replenishment at the rate of $6.20 per litre since it is regularly used.

Hence, relevant cost of the 880 liters of the raw material when deciding how much to bid on the special order = 880*$6.20

= $5,456

i.e. B

Same amount is given in Option D. Check your options again. The answer remains $5,456