Page 197 - BA2 Integrated Workbook - Student 2017
P. 197
Short-term decision making
Pricing for one-off decisions
When making a one-off pricing decision only relevant cash flows should be used.
1.1 Relevant cost of materials
There are a number of alternative costs which could be relevant for materials:
purchase price, replacement cost, net realisable value or opportunity cost. The
relevant cost will depend on the given situation.
The following decision tree can help to determine the relevant cost of materials:
Are materials already No Purchase price
in inventory?
Yes
Will they be Yes Replacement cost
replaced?
No
No Net realisable value
Can they be used for
other purposes?
Yes
Opportunity cost
The opportunity cost is the contribution lost from alternative use.
TYU 2
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