Otool Inc. is considering using stocks of an old raw material in a special proje

Question

Otool 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 $2,416 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $7 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $6.30 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 $67 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?

Multiple Choice

$1,008

$941

$1,096

$1,120

Explanation / Answer

Answer is $1008

Since the material is obsolete in nature and no other use, therefore if order was not received company would sale at 6.30 per KG. Its relevant cost would be $6.30 per kg

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