Question: A machine which originally cost ` 12,000 has an estimated life of 10 years and is depreciated at the rate of ` 1,200 per year.

  1. A machine which originally cost ` 12,000 has an estimated life of 10 years and is depreciated at the rate of ` 1,200 per year. It has been unused for some time, however as expected production orders did not materialize. A special order has now been received which would require the use of the machine for two months. The current net realizable value of the machine is ` 8,000. If it is used for the job, its value is expected to fall to ` 7,500. The net book value of the machine is ` 8,400. Routine maintenance of the machine currently cost ` 40 per month. With use, the cost of maintenance and repairs would increase to ` 60 per month. What would be the relevant cost of using the machine for the order so that it can be charged as the minimum price for the order?

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