.21 (Minimum price to be quoted for an order-Relevant Cost Approach). (a) A machine which originally cost Rs. 12,000 has an estimated life of 10 years and is depreciated at the rate of Rs. 1,200 per year. It has been unused for some time, however as expected production orders did not materialize. A special order has now been received which would require the use of the machine for two months. The current net realizable value of the machine is Rs. 8,000. If it is used for the job, its value is expected to fall to Rs. 7,500. The net book value of the machine is Rs.8,400. Routine maintenance of the machine currently costs Rs. 40 per month. With use, the cost of maintenance and repairs would increase to Rs. 60 per month. What would be the relevant cost of using the machine for the order so that it can be charged as the minimum price for the order. (b) X Ltd. has been approached by a customer who would like a special job to be done for him and is willing to pay Rs. 22,000 for it. The job woula require the following materials: Material Total units Units already Book value of units in Realisable Replacement required in stock stock value Rs./unit Rs./units Rs./units 1,000 1,000 5 1,000 2.5 D 200 (i) Material B is used regularly by X Ltd. and if stocks are required for this job, they would need to be replaced to meet other production demand. (ii) Materials C and D are in stocks as the result of previous excess purchase and they have a restricted use. No other use could be found for material C but material D could be used in another job as substitute for 300 unit of material E which currently cost Rs. 5 per unit of (of which the company has no units in stock at the moment). What are the relevant costs of material, in deciding whether or not to accept the contract? Assume all other expenses on this contract to be specially incurred besides the relevant cost of material is Rs. 550. cost 6 A B 2.5 0 600 700 200 2 3 4 4 9 6