Lampshire inc is considering using stocks of an old raw material in a special pr

Question

Lampshire inc is considering using stocks of an old raw material in a special project The special project would require all 150 kilograms of the raw material that are in stock and that originally cost the company $2 236 in total if the company were to buy new supplies of this raw material on the open market, it woutd cost $780 per kilogram However, tne company has no othe- use for thrs raw materia ana.voukJ sell it at the discounted pnce of $710 per kilogram if it were not used in the special project The sae of the raw material would involve delivery to the purchaser at a total cost of $86 for all 150 kilograms Wnat is the relevant cost of the 150 kilograms of the raw material when deciding whether to proceed with the special project? $1,065 $1,170 $1,162 $979

Explanation / Answer

Relevant cost of the raw material

= net sale proceeds from the sale of the raw material (as the raw material has no other use it could be sold if the materials are not used in the special project. That means if the raw materials are used in the special project, the company will have to forego the net revenue that could be recived from the sale of the materials)

= sale value - cost of delivery

= $7.10 x 150 - $86

= $979

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