CMA Final · Strategic Cost Management · Relevant Cost Analysis
Veda Engineering holds 400 kg of a special alloy bought earlier at Rs 150 per kg. The alloy has no other use and can be sold as scrap at Rs 90 per kg after paying Rs 10 per kg for transport. A special order can use all 400 kg. What is the relevant cost of the alloy for the order?
The relevant cost is Rs 32,000. The original purchase price is sunk, so only the opportunity cost matters, which is the scrap sale net of transport: Rs 80 per kg for 400 kg. Ignoring the transport cost would wrongly give Rs 36,000.
- ARs 60,000
- BRs 36,000
- CRs 32,000Correct
- DRs 40,000
Explanation
The historical cost of Rs 150 is sunk. With no alternative use, the opportunity cost is net scrap value: (90 - 10) x 400 = Rs 32,000. Rs 36,000 ignores transport cost, and Rs 60,000 uses the sunk purchase price.
Did you get it right without looking?
One question tells you little. A timed set on Relevant Cost Analysis shows your real accuracy, how long you take and where you lose marks.
More Relevant Cost Analysis questions
- Mehta Fabricators holds 400 kg of a special alloy bought two years ago at Rs 300 per kg. The alloy has no other use in the firm. It can be s…
- Mahesh Engineering has spare capacity of 2,000 machine hours. A special order needs 1,500 machine hours. The variable cost is Rs 90 per hour…
- Pooja Foods needs 800 kg of Material X for a job. Stock is 500 kg bought at Rs 40 per kg; its current replacement cost is Rs 52 per kg and i…
- Kaveri Foods sells a product at Rs 50 per unit with variable cost Rs 30. A special order for 2,000 units at Rs 38 per unit arrives. Acceptin…
- Meera Industries produces a joint product that is sold at the split-off point for Rs 40 per kg. It can be processed further at an additional…
- Sagar Foods makes 10,000 units of a component at a cost per unit of: materials Rs 30, labour Rs 20, variable overhead Rs 10, and fixed overh…