Inventory Historic cost Sales value Replacement (£/unit) (£/unit) cost (£/unit)

Question

Inventory Historic cost Sales value Replacement (£/unit) (£/unit) cost (£/unit) Component X 10 15 18 Component Y 25 17 20 Component Z 35 40 50 Component X is in constant use in business. We currently have 150 units of Component X. Component Y was bought several years ago and there are 200 units in stock which has no current use in business. It could be sold at sales value of £17 per unit. Component Z is in constant use in business. We currently have 50 units of Component Z. For a New Project 1, we need 100 units of Component X and 600 units of Component Y and 100 units of Component Z. Required: Calculate the total relevant cost to be included for components X, Y and Z for this New Project 1 and briefly explain the rationale for your choice for each component. (Total: 5 points)

Explanation / Answer

All Amounts in $ Component Historical Sales Replacement Cost Value Costs X 10 15 18 Y 25 17 20 Z 35 40 50 Total Relevant Cost, Component wise Component Units Price Total Reason for Required considered Cost basis X 100 10 1000 Constant use in business ; hence irrepleceable Y 600 17 10200 No use in business ; can be sold on as is where is Z 100 35 3500 Constant use in business ; hence irrepleceable

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