Global’s special order also requires 1,700 kilograms of genatope, a solid chemic

Question

Global’s special order also requires 1,700 kilograms of genatope, a solid chemical regularly used in the company’s products. The current stock of genatope is 9,600 kilograms at a book value of 9.60 p per kilogram. If the special order is accepted, the firm will be forced to restock genatope earlier than expected, at a predicted cost of 10.20 p per kilogram. Without the special order, the purchasing manager predicts that the price will be 9.80 p when normal restocking takes place. Any order of genatope must be in the amount of 5,900 kilograms.

What is the relevant cost of genatope?

Identify the relevance of each of the figures given in the exercise in terms of making the special-order decision.

Book Value of Inventory

Quantity to be used in special order

Predicted cost if next order is placed early

Predicted cost if next order is placed on time.

Explanation / Answer

What is the relevant cost of genatope? Ans) The Relevant Cost of Genatope is 9.80 P for normal order and 10.20 P for special order Identify the relevance of each of the figures given in the exercise in terms of making the special-order decision. Ans) We have to do miminum Order 5900 Order Price 10.2 P Ker kilograms 60180 Book Value of Inventory Ans) Book value of 9600 Genatope is 9.60p Total Value of inventory 92160 Quantity to be used in special order Ans) 5900 kilograms Predicted cost if next order is placed early Ans) If we placed early order it is excess cost of 0.4 p Genatope per order Total Cost of 60180 (5900*10.20) Predicted cost if next order is placed on time. Ans) Total Cost of 57820 (5900*9.80)

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