Inter continental’s special order also requires 1,000 kilograms of genatope, a solid chemical regularly used in the company’s products. The current stock of genatope is 8.000 kilograms at a book value of 810p per kilogram. If the special order is accepted, the firm will be forced to restock genatope earlier than expected, at a predicted cost of 8.70p per kilogram. Without the special order, the purchasing manager predicts that the price will be 8.30p when normal restocking takes place. Any order of genatope must be in the amount of 5,000 kilograms.

Required:

1. What is the relevant cost of genatope?

2. Discuss each of the figures in the exercise in terms of its relevance to the decision.