19.4

International Chemical Company (ICC) recently received an order for a product that it does not normally produce. Since the company has the spare production capacity, management is considering accepting the order. In analyzing the decision, the assistant accountant is compiling the relevant costs of producing the order. Production of the special order would require 8 000 kilograms of theolite. International Chemical Company does not use theolite for its regular product, but the firm has 8 000 kilograms of the chemical on hand from the days when it used theolite regularly. The theolite could be sold to a chemical wholesaler for $29 000. The carrying amount of the theodolite is $4 per kilogram. International Chemical Company could buy theolite for $4.80 per kilogram.

Refer to the data given in Exercise E19.24. International Chemical Companys special order also requires 1 000 kilograms of genotype, a solid chemical regularly used in the companys products. The current stock of genotype is 8 000 kilograms at a carrying amount of $16.20 per kilogram. If the special order is accepted, the firm will be forced to restock genotype earlier than expected, at a predicted cost of $17.40 per kilogram. Without the special order, the purchasing manager predicts that the price will be $16.60 when normal restocking takes place. The order size for genotype is 5 000 kilograms.

Required:

1. What is the relevant cost of genotype?

2. Discuss each item of numerical data detailed in this exercise in terms of its relevance to the decision.