Hollaway Manufacturing is considering using stocks of an old raw material in a special project. The special project would require all 180 kilograms of the raw material that are in stock and that originally cost the company $2,406 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $7 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $6. 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 $68 for all 180 kilograms. What is the relevant cost of the 180 kilograms of the raw material when deciding whether to proceed with the special project

Respuesta :

Assuming the delivery cost is $68. The relevant cost of the 180 kilograms of the raw material when deciding whether to proceed with the special project is $1,075.

Relevant cost

Using this formula

Relevant cost=(Raw material×Discounted price)-Delivery cost

Where:

Raw material=180 kilograms

Discounted price=$6.35

Delivery cost=$68

Let plug in the formula

Relevant cost=(180 kilogram×$6.35)-$68

Relevant cost=$1,143-$68

Relevant cost=$1,075

Inconclusion the relevant cost of the 180 kilograms of the raw material when deciding whether to proceed with the special project is $1,075.

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