Intercontinentals special order requires 1,400 kilograms of genatope, a solid chemical regularly used in the companys products. The current stock of genatope is 8,400 kilograms at a book value of 8.90 p per kilogram. If the special order is accepted, the firm will be forced to restock genatope earlier than expected, at a predicted cost of 9.50 p per kilogram. Without the special order, the purchasing manager predicts that the price will be 9.10 p when normal restocking takes place. Any order of genatope must be in the amount of 6,100 kilograms.

Required:

1. What is the relevant cost of genatope? (p)

2. Identify the relevance of each of the figures given in the exercise in terms of making the special-order decision.

a. Book Value of Inventory:

b. Quantity to be used in the special order:

c. Predicted cost if next order is placed early:

d. Predicted cost if next order is placed on time: