Question
An unexpected order has been received for a product for which the labour and machine time is available and which requires three types of material
An unexpected order has been received for a product for which the labour and machine time is available and which requires three types of material A, B, C.
Material A. This material is used regularly within the firm for various products. The new order will require 1500 kgs. The present stock is 21,000 kgs purchased at 2.50 per kg. The current replenishment price is 2.65 per kg and it is estimated that if 1500 kgs is used on the new order the normal stock replenishment order for A will have to be brought forward 3 weeks at which time it is estimated that the replenishment price will be 2.70 per kg.
Material B.1000 kgs of this material are in stock purchased at 85p per kg and the new order requires 800 kgs. The current replacement price is 95p per kg. This material is used on no other product and recent enquiries revealed that the material in stock could be sold at 55p per kg.
Material C.5000 kgs are required for the order and large quantities are in stock purchased at 18p per kgs. Because of heavy usage the materials is purchased weekly and the current price is 21p per kg.
What is the relevant cost for decision making purposes of each of the three materials?
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