Global\'s special order also requires 500 kilograms of genatope, asolid chemical

Question

Global's special order also requires 500 kilograms of genatope, asolid chemical regularly used in the company's products. Thecurrent stock of genatope is 8,500 kilograms at a book value of8.90 p per kilogram. If the special order isaccepted, the firm will be forced to restock genatope earlier thanexpected, at a predicted cost of 9.40 p perkilogram. Without the special order, the purchasing managerpredicts that the price will be 6.30 p, when normalrestocking takes place. Any order of genatope must be in the amountof 5,000 kilograms.
(a) What is therelevant cost of genatope?
(a) What is therelevant cost of genatope?

Explanation / Answer

Check predicted price of 6.30 p fornormal restocking, it should be in between 8.90 p i.e. book valueand 9.40 p cost to procure special order.

Replacement cost of thegenatope        500 @6.30p                            3,150p

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