E19.24

International Chemical Company (ICC) recently received an order for a product that it

does not normally produce. Since the company has spare production capacity,

management is considering accepting the order. In analysing 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 theolite is $4 per

kilogram. International Chemical Company could buy theolite for $4.80 per kilogram.

Required:

1. What is the relevant cost of theolite for the purpose of analysing the special

order decision?

2. Discuss each item of numerical data given in the exercise with regard to its

relevance in making the decision.