ACCA Performance Management (F5) Certification Practice Exam

What is the relevant cost of materials that are out of stock?

1. The original purchase price before stock was depleted

2. Estimated future costs of replacement

3. Current purchase price

4. Historical cost of materials

The correct answer is: Current purchase price

The relevant cost of materials that are out of stock is the current purchase price. This is because relevant costs are defined by their impact on future cash flows and decision-making processes. In the context of materials that need to be replenished, decision-makers focus on the costs they will incur to purchase new materials, which is reflected in the current purchase price. When a company needs to restock materials, the cost associated with buying those materials is what will affect its financial situation moving forward. The current purchase price is the most accurate measure, as it reflects what the company will have to pay now to obtain the materials it needs to continue operations. Using the original purchase price is not relevant because it does not influence any future decisions or cash flows. Similarly, historical costs represent past expenses that do not reflect present buying conditions, and while future replacement costs might provide insights into potential budget needs, they do not capture the immediate cost that will be incurred to acquire materials right now. Hence, the current purchase price provides the most up-to-date and applicable cost for relevant decision-making.