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##### 11.3 A spare parts supplier is thinking of buil...

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11.3 A spare parts supplier is thinking of building a car from the parts he has in his yard. He does not expect any reward for his labour but wants to know what costs he should include for the materials. He has provided the following information: ? A chassis was bought for ?100 and has no scrap value. ? A reconditioned engine will cost ?375. However, an old engine was bought for ?50. It can either be sold in its present condition for ?225 or additional parts costing ?250 could be bought to bring to bring the engine to an equivalent standard to the reconditioned one. ? Tyres costing ?180 need to be purchased. ? Paint is in stock at a cost of ?60 but it will need to be replaced at its current price of ?70. this is from the instructor: Cost of materials to build a car based on given information. Hint on the first bullet - "chassis bought for 100" is this relevant? You are given bullet points of information/materials note (tyres is tires). The solution would be to identify the relevant material cost from the bullet points. For example: is the chassis a relevant cost to be counted? What does the text offer about sunk costs (this is important), cost with no future cash flow and items that have no scrap value (all of these are important). Is this type of material relevant when you are trying to identify relevant costs? This is a simple cost identification problem. Approach - read the cost information - refer to the text to determine if the type of cost is relevant. Prepare a description column and a cost column - total the cost column and you have relevant costs. HINT: which cost is relevant current cost or replacement cost?

Paper#12914 | Written in 18-Jul-2015

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