Lampshire Inc. is considering using stocks of an old raw material in a special p

Question

Lampshire 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 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?

Explanation / Answer

965 (The company's relevant cost in this case is how much it could earn by selling the 160 kilograms at the discounted price of $6.50 per kilogram, less delivery costs of $75 for all 160 kilograms. $1,040 - $75 = $965)

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