A business is considering making a bid to undertake a contract. Fulfilment of the contract will require
Question:
A business is considering making a bid to undertake a contract. Fulfilment of the contract will require the use of two types of raw material. Quantities of both of these materials are held by the business. If it chose to, the business could sell the raw materials in their present state. All of the inventories of these two raw materials will need to be used on the contract. Information on the raw materials concerned is as follows:
Inventories item A1 is in frequent use in the business on a variety of work.
The inventories of item B2 were bought a year ago for a contract that was abandoned.
It has recently become obvious that there is no likelihood of ever using this raw material if the contract currently being considered does not proceed.
Management wishes to deduce the minimum price at which the business could undertake the contract without reducing its wealth as a result. This can be used as the baseline in deducing the bid price.
How much should be included in the minimum price in respect of the two inventories items detailed above?
Step by Step Answer:
Accounting An Introduction
ISBN: 9780273733201
5th Edition
Authors: Eddie McLaney, Dr Peter Atrill, Eddie J. Mclan