Schickel Incorporated regularly uses material B39U and currently has in stock 460 liters of the material for which it paid $3,128 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $5.95 per liter. New stocks of the material can be purchased on the open market for $6.45 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 760 liters of the material to be used in a job for a customer. The relevant cost of the 760 liters of material B39U is:
A) $4,902
B) $4,672
C) $4,522
D) $6,450

Question

Quizplus · Accepted Answer

The relevant cost is the opportunity cost of using the material, which is the market price of $5.95 per liter. Therefore, 760 liters x $5.95 = $4,902.

Schickel Incorporated Regularly Uses Material B39U and Currently Has in Stock