The company received an order from a customer in Europe. Mr. Kunta, the management accountant, stated that the material used in the production of the goods is available in the warehouse - the material was purchased at a price of R38.00 per unit. Due to the pandemic the material is in short supply which means that the company must postpone the delivery of the order of local customers.The market price of the material is R45.00 per unit. The company generally realize a contribution of R28.00 per unit for sales to local customers.

Ms. Glenda, the assistant cost accountant, stated that the relevant cost of the material used in the production of the product should be based on the market value because the company must replace the material used in the production process.

1. Discuss whether the statement made by Ms. Glenda that the relevant cost of the material used in the production process should be based on the current market price is correct in compliance with the management accounting principles.

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