This objective test question contains a question type which will only appear in a computer-based exam, but this question provides valuable practice for all students whichever version of the exam they are taking.
Appler is considering the relevant cash flows involved in a short-term decision. An important client has asked for the minimum price for the processing of a compound. The compound involves the following:
Material A: Appler needs 500 kg of material for the compound but has 200 kg in stock present. The stock items were bought 3 months ago for $5/kg but have suffered 10% shrinkage since that date. Material A is not regularly used in the business and would have to be disposed of at a cost to Appler of $400 in total. The current purchase price of material A is $6.25/kg.
Material B: Appler needs 800 kg of material B and has this in stock as it is regularly needed. The stock was bought 2 months ago for $4/kg although it can be bought now at $3.75/kg due to its seasonal nature.
Processing energy costs would be $200 and the supervisor says he would allocate $150 of his weekly salary to the job in the company’s job costing system.
Based upon the scenario information, what is the total cost for processing and supervision to be included in the minimum price calculation?