Question：In order to utilise some spare capacity, Porky Pig Co is preparing a quotation for a special order which will require 140 square metres of material P.
The company only has 60 square metres of the material in inventory (which originally cost $30 per square metre). The material is used in the production of the company's main product, the Super Shed. Each unit of the Super Shed uses 3 square metres of P and, based on an input value of $30 per square metre of P, each unit of Super Shed yields a contribution of $54. The resale value of P is $31 per square metre, while its present replacement price is $31 per square metre. Material P is readily available.
What is the relevant cost of the 140 square metres of material P to be included in the quotation?
The relevant cost is $________
The correct answer is:$4,340.
The relevant cost of material P is its current replacement cost (because it is used frequently by Porky Pig Co) = 140 × $31 = $4,340