What are the relevant costs of material

Reference no: EM13920465

O'Reilly Co has been approached by a customer who would like a special job to be done for him, and who is willing to pay $22,000 for it. The job would require the following materials:

	Total units	Units already in	Book value of	Realisable	Replacement
Material	required	inventory	units in inventory	value	cost
			$/unit	$/unit	$/unit
A	1,000	0	-	-	6
B	1,000	600	2	2.5	5
C	1,000	700	3	2.5	4
D	200	200	4	6.0	9

(a) Material B is used regularly by O'Reilly Ltd, and if units of B are required for this job, they would need to be replaced to meet other production demand.

(b) Materials C and D are in inventory 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 as substitute for 300 units of material E, which currently costs $5 per unit (of which the company has no units in inventory at the moment).

What are the relevant costs of material, in deciding whether or not to accept the contract?

Reference no: EM13920465

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