Question: Question 1 Saks LTD has been approached by a customer who would like a special job to be done for him and who is willing

Question 1

Saks LTD has been approached by a customer who would like a special job to be done for him and who is willing to pay K22,000 for it. The job would require the following materials:

Material	Total Units required	Units already in stock	Book value of units in stock K/unit	Realizable value K/unit	Replacement cost K/unit
A	1,000	0			6
B	1,000	600	2	2.50	5
C	1,000	700	3	2.50	4
D	200	200	4	6.00	9

Material B is used regularly by SAKS LTD and if units of B are required for this job, they would need to be replaced to meet other production demands.

Material C and D are in stock as the result of previous over buying and they have a restricted use. No other use could be found for material C, but the units of material D could be used in another job substitute for 300 units of material E which currently cost K 5 per unit( of which the company has no units in stock at the moment).

Required

Calculate the relevant costs of material for deciding whether or not to accept the contract. (20 marks)

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