Lampshire Inc

question 152

Multiple Choice

Lampshire Inc.is considering using stocks of an old raw material in a special project.The special project would require all 160 kilograms of the raw material that are in stock and that originally cost the company $1,136 in total.If the company were to buy new supplies of this raw material on the open market,it would cost $7.25 per kilogram.However,the company has no other use for this raw material and would sell it at the discounted price of $6.50 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 $75 for all 160 kilograms.What is the relevant cost of the 160 kilograms of the raw material when deciding whether to proceed with the special project?

• A)$1,040
• B)$965
• C)$1,136
• D)$1,160

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Definitions:

Cost of Goods Sold

The direct costs attributed to the production of the goods sold by a company, including materials and labor.

Raw Material Inventory

The total stock of basic materials awaiting processing into finished goods within a manufacturing or production facility.

Finished Goods Inventory

The stock of completed products that are ready to be sold but have not yet been sold.

Predetermined Overhead Rate

A rate used to allocate overhead costs to products or services, based on estimated costs and activity levels.