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29 January, 15:31

Otool Inc. is considering using stocks of an old raw material in a special project. The special project would require all 240 kilograms of the raw material that are in stock and that originally cost the company $2,112 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $9.25 per kilogram. However, the company has no other use for this raw material and could sell it at the discounted price of $8.35 per kilogram if it were not used in the special project. In that case, Otool would pay $71 for the delivery of all 240 kilograms to the purchaser. What is the relevant cost of the 240 kilograms of the raw material when deciding whether to proceed with the special project

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  1. 29 January, 15:47
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    The relevant cost is $1933

    Explanation:

    Opportunity cost of sales foregone if special project is

    undertaken ($8.35 * 240) $2,004

    Less: delivery cost $71

    Relevant cost of 240 kilograms of raw material $1,933
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