Q Limited has in stock 10,000 kg of V, a raw material which it bought for £5 per kg
5 years ago. This was bought for a product line which was discontinued 4 years ago.
At present, V has no use in its existing state but could be sold as scrap for £1.50 per
kg. One of the company’s current products (QX) requires 2 kg of a raw material which
is available for £4.50 per kg. V can be modified at a cost of £1 per kg so that it may
be used as a substitute for this material. However, after modification, 3 kg of V is
required for every unit of QX to be produced.
Q Limited has now received an invitation to tender for a product which could use
V in its present state.
The relevant cost per kg of V to be included in the cost estimate for the tender is:
(A) £1.00
(B) £1.50
(C) £2.00
(D) £5.00.
