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Digiron [165]
3 years ago
6

Otool Inc. is considering using stocks of an old raw material in a special project. The special project would require all 150 ki

lograms of the raw material that are in stock and that originally cost the company $2,236 in total. If the company were to buy new supplies of this raw material on the open market, it would cost $8 per kilogram. However, the company has no other use for this raw material and would sell it at the discounted price of $7.10 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 $86 for all 150 kilograms. What is the relevant cost of the 150 kilograms of the raw material when deciding whether to proceed with the special project?
Business
1 answer:
frez [133]3 years ago
5 0

Answer:

The relevant cost of the 150 kilograms of the raw material when deciding whether to proceed with the special project: $979.

Explanation:

We do not use the original cost $2,236 because it is sunk cost.

We do not use market value because Otool Inc. does not either incur this cost nor sacrifice any benefit from not buying at market price.

The relevant cost of these raw material should be the benefit sacrificing from not selling the raw material, instead using it in the project; calculated as:

Selling price x Amount sold - Cost of delivery = 7.1 x 150 - 86 = $979.

Thus, the answer is $979.

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Flow rate is defined as the number of flow units that pass through the business process per unit time.

The flow unit can be money, customers, products, parts, services, etc.

Example of flow rate is number of customers serviced per hour, number of parts produced per minute, etc.

From the definition, the flow rate can be expressed as:

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There are 2 scenarios in the given problem.

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By comparing the above scenarios, the one that gives higher flow rate is scenario 1, 10 customers over 2 hours.

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If an economy has its output equal to its potential, this will create a reduction in short-run equilibrium output leading to a recessionary output gap.

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