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2. Assume that A10 and C70 are both no longer used in any of the company's normal products. What is the relevant cost of the raw materials that the company should include in its analysis when deciding whether to accept or reject the special order?

2. Assume that A10 and C70 are both no longer used in any of the company's normal products. What is the relevant cost of the raw materials that the company should include in its analysis when deciding whether to accept or reject the special order?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Shortt Company has been approached by a customer who is offering a one-time-only special order to buy 4,300 units of a customer- designed part. Each one of these parts requires 4 units of raw material A10 and 4 units of raw material C70. Data concerning these two raw materials follow: A10 C70 Units in Raw Cost Per Unit in Materials Raw Materials Inventory Inventory 1,950 $7.00 14,300 $ 7.50 Current Market Disposal Value Price Per Unit Per Unit $ 3.50 $4.00 $ 8.00 $ 8.50 The current market price per unit mentioned above reflects the prices currently charged by Shortt Company's raw materials supplier. The disposal value per unit mentioned above reflects the price that a recycling company would pay Shortt to purchase any unused raw materials that it wishes to liquidate. Material A10 is used by many of the company's products and is routinely replaced. Material C70 is no longer used by the company in any of its normal products. Required: 1. What is the relevant cost of the raw materials that the company should include in its analysis when deciding whether to accept or reject the special order? 2. Assume that A10 and C70 are both no longer used in any of the company's normal products. What is the relevant cost of the raw materials that the company should include in its analysis when deciding whether to accept or reject the special order?
Transcribed Image Text:Shortt Company has been approached by a customer who is offering a one-time-only special order to buy 4,300 units of a customer- designed part. Each one of these parts requires 4 units of raw material A10 and 4 units of raw material C70. Data concerning these two raw materials follow: A10 C70 Units in Raw Cost Per Unit in Materials Raw Materials Inventory Inventory 1,950 $7.00 14,300 $ 7.50 Current Market Disposal Value Price Per Unit Per Unit $ 3.50 $4.00 $ 8.00 $ 8.50 The current market price per unit mentioned above reflects the prices currently charged by Shortt Company's raw materials supplier. The disposal value per unit mentioned above reflects the price that a recycling company would pay Shortt to purchase any unused raw materials that it wishes to liquidate. Material A10 is used by many of the company's products and is routinely replaced. Material C70 is no longer used by the company in any of its normal products. Required: 1. What is the relevant cost of the raw materials that the company should include in its analysis when deciding whether to accept or reject the special order? 2. Assume that A10 and C70 are both no longer used in any of the company's normal products. What is the relevant cost of the raw materials that the company should include in its analysis when deciding whether to accept or reject the special order?
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