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Prepare calculations for relevant costs and irrelevant cost

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Reference no: EM132574406

Question 1: Prepare calculations for all relevant costs and irrelevant costs related to the urgent-order of Coved Ltd.

Material MR - the amount of material required for this order is 10,500 liters. This material is used on a day-to-day basis by the production department for of their existing products. The warehouse of Coved Ltd currently holds 3,200 liters of Material MR, which was bought at a price of $17.00 per liter two months ago from Ace Ltd. The current suppliers of Material MR, has recently increased the price of this material by 20% due to shortage in the market and rising fuel costs. Coved Ltd has sourced for two potential suppliers who can deliver identical material MR, as detailed below: 1) Jane Ltd - charges a price of $14.00 per liter and delivery charges are $3,000 for 1000 liters. 2) Amazon Ltd - charges a price of $16.00 per liter and delivery charges are $2,000 for 1000 liters are included in its price list.

Material MS - the urgent-order requires 4,500 kg of Material MS. The warehouse currently holds 8,000 kg of Material MS which was bought two months ago for $8 per kg. It is now found that the inventory of Material MS in store is of sub-standard quality for any of the current work and as such, the next best alternative is to disposed-off material MS at whatever price a buyer could offer them. A potential buyer for Material MS is found and the agreed gross sales proceeds are $26,400 for all of the inventory available in the warehouse. However, there will be a $500 carriage outward cost to be borne by Coved Ltd.

Material MT - has limited production use currently. However, Material MT could be used as a substitute for Material AX. The urgent-order requires 1,000 units of Material MT. The warehouse currently holds 1,500 units of Material MT bought at a total price of $15,000 a few months ago and the total net realizable value of all these stocks, currently are $13,050. The 1,500 units Material MT currently held in store could be used in another production-run as a substitute for 3,000 units of Material AX, which is not held in stock at the moment and can be bought at a of price of $8/unit.

Reference no: EM132574406

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