Page 234 - P1 Integrated Workbook STUDENT 2018
P. 234
Chapter 12
Example 2
Calculate the relevant cost of materials and labour for Robson.
Solution
Material A
Are the materials in inventory? – Yes
Will they be replaced? – Yes (they are regularly used in the company’s other
products)
Relevant cost = Replacement cost ($2.15 per kg)
Total relevant cost = 1,000 kgs × $2.15 = $2,150
Material B
Are the materials in inventory? – Yes, some. The remaining requirement
(1,400 kgs) need to be purchased at $3.50 per kg. These will therefore cost
$4,900.
The inventory then needs to be valued.
Will they be replaced? – No. There is no other use for the material.
Will they be used for other purposes? – No.
Relevant cost = Net realisable value ($1 per kg)
Relevant cost for the inventory = 600 kgs × $1 = $600
Total relevant cost = $4,900 + $600 = $5,500
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