You are given the following cost information:

Per unit	Historic purchase price	Current purchase price	Scrap value	Contract requirements
Product A	$2	$8	$3	20 units
Product B	$3	$12	$7	10 units
Product C	$5	$10	$0	11 units
Product D	Unavailable: worldwide shortage.			5 units
Product E	$20	$11	$7	See below

Additional information:

• Product A has 10 units in inventory. These units are left over from a previous order and are not used in regular production.
• Product B has 50 units in inventory. These units are in constant use.
• Product C is toxic and there are 20 units in inventory. If not used in this contract, they will be disposed of at a flat rate cost of $80 for 1 to 10 units or $100 for 11 to 20 units.
• Product D is not in inventory and is not available worldwide, however Product E can be used as substitute with further processing costs of 2.50 per unit.
• Product E is rarely used in the business and there is none in inventory.

1. What is the relevant cost of the above order?
2. To be relevant what criteria should a cost meet?
3. Discuss the differences between the use of relevant costing and traditional absorption costing
4. Explain the meaning of opportunity costs and sunk costs, giving examples

Answer rating: 100% (QA)

1 Calculation of relevant cost Product A 310810 110 Product B 1210 120 Product C 100 Product D 11255 675 Total relevant cost 1975 2 In order to meet t... View the full answer