Ask Question
13 February, 10:35

Tara Inc. is considering using stocks of an old raw material in a special project. The special project would require all 160 kilograms of the raw material that are in stock and that originally cost the company $1,136 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $7.25 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $6.50 per kilogram if it were not used in the special project. The sale of the raw material would involve delivery to the purchaser at a total cost of $75.00 for all 160 kilograms. What is the relevant cost of the 160 kilograms of the raw material when deciding whether to proceed with the special project?

+4
Answers (1)
  1. 13 February, 10:48
    0
    The relevant cost of the 160 kilograms is $965

    Explanation:

    In deciding whether to proceed with the special project, the relevant cost of the is the total disposal value of the old stock less the cost of delivery to purchaser at $75.

    The open market price is not relevant as the raw materials is not being used and needs not be replenished when it is exhausted.

    The original cost of $1,136 to the company is not also relevant as it is a sunk cost.

    Hence the relevant cost of the 160 kilograms is computed thus:

    ($6.50*160) - $75=$965
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Tara Inc. is considering using stocks of an old raw material in a special project. The special project would require all 160 kilograms of ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers