Part II. Questions 11-30 are worth 3.5 points each. Petaluma Inc. regularly uses
ID: 2797648 • Letter: P
Question
Part II. Questions 11-30 are worth 3.5 points each. Petaluma Inc. regularly uses material Y51B and currently has in stock 460 liters of the material for which it paid $2,530 several weeks ago. If this were to be sold as is on the open market as surplus material, it would fetch $4.55 per liter. New stocks of the material can be purchased on the opern market for $5.45 per liter, but it must be purchased in lots of 1,000 liters. You have been asked to determine the relevant cost of 720 liters of the material to be used in a job for a customer. The relevant cost of the 720 liters of material YSIB is: A. $3,924 B. $5,450 C. $3,510 D. $3,276 11. Page 3 of 14Explanation / Answer
Ans A) 3924
In Relevant Cost, we consider The price at which the material is currently available in the market. Thus, relavant rate per unit is $ 5.45.
Relevant Cost in case of Stock which is in regular use =
Total Purchase Price of Lot - Transferred to Regular Stock
(1000 litres * $ 5.45) - ( 280 litres * $ 5.45)
=$ 3924
Since out of 1000 litres, we need only 720 litres, we will transfer balance 280litres to regular stock.