Question

Lafferty Corporation is a specialty component manufacturer with idle capacity. Management would like to use its unused capacity to generate additional profits. A potential customer has offered to buy 6,370 units of component Rocket. Each unit of Rocket requires 8 units of material CES4 and 6 units of material XEST. Data concerning these two materials follow. Material CES4 XES7 Units in Stock 49,420 32,760 Original Cost Per Unit $4.14 $9.64 Current Market Price Per Unit $ 4.20 $10.45 Disposal Value Per Unit $3.44 $9.29 Material CES4 is in use in many of the company's products and is routinely replenished. Material XES7 is no longer used by the company in any of its normal products and existing stocks would not be replenished once they are used up. What would be the relevant cost of the materials, in total, for puposes of determining a minimum acceptable price for the order for product Rocket? (CIMA adapted) Multiple Choice $564,376 O $611.306 5616577

Answer 1

Material	Units in Stock	Releveant rate
CES4	$49,420	$4.20	$207,564
XE57	$32,760	$9.20	$301,392
		Relevant cost	$508,956

Answer 2

The relevant cost is $508,956