ACCA Performance Management (F5) Certification Practice Exam

What is the relevant cost of materials in stock that are regularly used and should be replaced?

1. Scrap value of materials

2. Current purchase price

3. Historical costs associated with the material

4. Future market value of the material

The correct answer is: Current purchase price

The relevant cost of materials in stock that are regularly used and should be replaced is the current purchase price. This is because the relevant cost is defined as the cost that will be directly incurred or saved as a result of a decision. When considering the replacement of materials, it's crucial to focus on the costs that will impact future decisions, which in this case is the current purchase price. Using the current purchase price reflects the amount that will need to be spent if the materials are to be replaced. This is important for decision-making, as it allows managers to evaluate costs based on what they would incur in real-time for procuring new materials as opposed to outdated prices or values that do not influence current financial considerations. Other options, such as the scrap value, historical costs, or future market value, do not represent the costs that will directly affect the decision to replace the materials. Scrap value reflects only what can be recovered from disposing of existing materials and does not pertain to replacement costs. Historical costs represent past expenditures and are sunk costs, which should not influence current decisions because they cannot be recovered. Finally, the future market value is speculative and does not provide a basis for the actual costs that would be incurred for replacement right now. Hence, focusing on the