Intercontinentals special order requires 1,600 kilograms of genatope, a solid chemical regularly used in the companys products. The current stock of genatope is 8,600 kilograms at a book value of 8.70 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 9.30 p per kilogram. Without the special order, the purchasing manager predicts that the price will be 8.90 p when normal restocking takes place. Any order of genatope must be in the amount of 5,100 kilograms.

1. What is the relevant cost of genatope?

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

Total relevant cost Total relevant cost U p (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