Schemm Inc. regularly uses materia F04E and currently has in stock 460 liters of

Question

Schemm Inc. regularly uses materia F04E and currently has in stock 460 liters of the material for which it paid $2,622 several weeks ago. If this were to be sold as is on the open market as surprlus material, it would fetch %5.25 per liter. New stocks of the material can be purchased on the open market for $5.85 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 800 liters of the material to be used in a job for a customer. The relevant cost of the 800 liters of material F04E is: a)$5,850 b) $4,200 c) $4,404 d) $4,680

Explanation / Answer

d) $4,680 Since Schemm regularly uses Material F04E we have to take the purchase cost of new material F04E We will not take sale price of $5.25 since it is regularly used We will not take purchase price of 5.70(2622/460) since materials in stock would be used in other Jobs Price in Open Market is $5.85 Thus Relevant cost of 800 Litres is 800*5.85 =$4,680

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