Otool Incis Considering Using Stocks of an Old Raw Material in in a Special

question 175

Multiple Choice

Otool Inc.is considering using stocks of an old raw material in a special project.The special project would require all 240 kilograms of the raw material that are in stock and that originally cost the company $2,112 in total.If the company were to buy new supplies of this raw material on the open market,it would cost $9.25 per kilogram.However,the company has no other use for this raw material and would sell it at the discounted price of $8.35 per kilogram if it were not used in the special project.The sale of the raw material would involve delivery to the purchaser at a total cost of $71 for all 240 kilograms.What is the relevant cost of the 240 kilograms of the raw material when deciding whether to proceed with the special project?

• A) $1,933
• B) $2,004
• C) $2,220
• D) $2,112

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Definitions:

Direct Payments

Payments made directly by the government to farmers, individuals, or businesses not requiring the provision of goods or services in return.

Countercyclical Payments

Government payments made to individuals or firms during times of economic downturns to offset decreases in demand and stabilize the economy.

Marketing Loans

Loans that allow farmers to borrow against the value of their stored crops, which acts as collateral, providing them with liquidity while they wait for favorable market conditions to sell.

Special Interest Effect

The impact of interest groups or individual stakeholders in influencing government policy to benefit a small, specific group at the expense of the general public.