Louise Ltd. regularly uses material FT6 and currently there are 460kg in stock purchased for €3,128 three week ago. If this were to be sold as surplus material it would sell for €5.95 per kg. Material FT6 can now be purchased for €6.45 per kg, but it can only be purchased in lots of 1,000 kgs. The firm is considering a once- off order for a customer next month and the order would require 760kg of material FT6.

The relevant cost of material FT6 for the once-off order is:

(a) €4,902

(b) €4,672

(c) €4,522

(d) €4,128

This is because if the firm decided to use its own stock of 460 kg, it would have to purchase additional 300 kg to meet the 760 kg requirement at €6.45 per kg.

This would result in a total cost of: (460 kg + 300 kg) x €6.45 per kg = €4,672. Hence, option (b) €4,672 is the correct answer.Therefore, Louise Ltd. would have to buy 300 kg of FT6 material at €6.45 per kg to fulfill the order. Therefore, the total cost would be €1,935.

This cost, along with the cost of the current stock would give us the relevant cost of the once-off order. The current stock of FT6 is 460 kg, which was purchased at €3,128.

Therefore, the cost of current stock per kg = 3,128 / 460 = €6.8 per kg. The relevant cost of the once-off order would be = (300 x 6.45) + (460 x 6.8) = €1,935 + €3,128 = €4,672. (B)

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