Knedler Corporation is preparing a bid for a special order that would require 720 liters of material C01D. The company already has 200 liters of this raw material in stock that originally cost $9.90 per liter. Material C01D 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 $9.60 per liter. New stocks of the material can be readily purchased for $10.10 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?
A) $7,232
B) $7,272
C) $6,912
D) $6,972

Question

Quizplus · Accepted Answer

The relevant cost includes the cost to replace the 200 liters used from stock at $10.10 per liter and the cost to purchase the additional 520 liters needed at $10.10 per liter. Thus, (200 liters x $10.10) + (520 liters x $10.10) = $7,272.

Knedler Corporation Is Preparing a Bid for a Special Order