Relevance cost

Mar 14, 2012
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Yesterday, 09:21 AM
Dear All,

Please kindly help me to verify the relevance cost as below:

1-Material A is in stock and cost 3,000$. It was originally intended for use in a product line which has now been discontinueed. The material can now only be used for the manufacture of the subcomponents or disposed of, the latter incuring transport and other costs of $1,500.

The relevance cost is $4,500??

2-Skilled men will be required to help manufacture the sub-component, receiving pay totalling $31,000. They will be transfered from another department which will have to recruit labour as replacements, at an estimated total cost of $ 37,500 including pay and recruitment costs.

The relevance cost is $6,500 treated as opportunities cost????

3-It is intended to extend the duties of a foremen currently employed elsewhere in the factory to include the supervision of the production process relating to the manufacture of the sub-components. Around 10% of the forman's time will be devoted to the sub-components: the foreman is paid $24,000 p.a

The relevance cost is $2,400

4-Machinery currenlty lying idle will be used to manufacture the sub-components as below:
a. Original cost 5 years $45,000 not relevance cost is a sunk cost ??
b. Estimated life 10 years (Current realizable value) $15,000 is relevance cost ??
c. Estimated realizable value in one year's time after using on the order $12,000 is relevance cost??

5-General overheads are to be allocated on the basis of 100% of labour cost so it is 31,000 ???

Thanks lot for kindly help.



Apr 12, 2012
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my friend the scanario u have given is incomplete.but based on what i understood that if u want to use this materail A stock in production of any product or component..its relevant cost will be 3,000 less 1,500 so net relevant cost will be 1,500.reasons for this is that when u use this material A in production of subcomponents, it will make ur necessary disposal cost of 1,500 so ultimately u have saved 1,500 in respect of disposal cost by using this material A in subcomponent production..

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