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 8000 kilograms of theolite. International Chemical Company does not use theolite for its regular product, but the firm has 8000 kilograms of the chemical on hand from the days when it used theolite regularly. The theolite could be sold to a chemical wholesaler for $29000. The carrying amount of the theolite is $4 per kilogram. International Chemical Company could buy theolite for $4.80 per kilogram.

Required:

a. What is the relevant cost of theolite for the purpose of analysing the special order decision?

b. Discuss the relevance of the sales value of the theolite, the carrying value of the theolite and the current purchase price of the theolite with regards to the special order decision.