Metallics Incorporated recently received a special order for a product it does not normally produce. Since the company has excess production capacity, management is considering accepting the order. In analysing the decision, the assistant controller is compiling the relevant costs of producing the order. Production of the special order would require 48,000 kilograms of theolite. Intercontinental does not use theolite for its regular product, but the firm has 48,000 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 book value of the theolite is $4.00 per kilogram. Intercontinental could buy theolite for $4.80 per kilogram.

Answer the following questions:

1. What is the relevant cost of theolite for the purpose of analysing the special-order decision? (2 marks)
2. Is there an opportunity cost involved in your decision in (a) above? Yes, or no? Explain the meaning of opportunity cost. (3 marks)
3. Discuss each of the numbers given in the exercise with regard to its relevance in making the decision? (5 marks)