ABC Co. have 1,000 kg of high quality iron ore stock in a warehouse that has been sitting there for well over 4 months. A recent quote from a scrap merchant offered about P2,200 for the entire lot about 2 weeks ago. The historical value of stock using FIFO basis is P5,750. The iron ore stock could also be used on a current batch of goods ABC are working on which would require the full amount of 1,000 kgs, but the batch does only need to use a lower quality of iron. This can be smelted down and used for manufacturing water cans, which have the following cost information.
ABC Co. have 1,000 kg of high quality iron ore stock in a warehouse that has been sitting there for well over 4 months. A recent quote from a scrap merchant offered about P2,200 for the entire lot about 2 weeks ago. The historical value of stock using FIFO basis is P5,750. The iron ore stock could also be used on a current batch of goods ABC are working on which would require the full amount of 1,000 kgs, but the batch does only need to use a lower quality of iron. This can be smelted down and used for manufacturing water cans, which have the following cost information.
|
Selling price |
15.00 |
|
Iron ore (2kg) |
(9.00) |
|
Labour |
(4.00) |
|
Contribution |
2.00 |
|
Fixed |
(1.00) |
|
Profit |
1.00 |
High quality iron ore can be currently purchased for P4.75 per kg. The price per kg above is the current market price for cheap iron ore. A customer in desperate need for this stock rings up ABC and frantically offers P5,000 for the 1,000 kg. In determining the acceptability of this offer, what amount should be compared to the P5,000 price?
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