Relevant Cost of Material

Material  In Stock  No  RC= Current purchase price

Material  In stock  Yes  Regular Use  Yes  RC= Current purchase cost
Material  In stock  Yes  No regular Use  Alternative/Substitute use  Yes  RC = Higher of VIU or (Current
Price of another product less modification cost) or Scrap Value
Material  In stock  Yes  No regular Use  Alternative/Substitute Use  No  RC = Scrap/Disposal Value

Relevant Cost of Labour

Spare Capacity  RC = Nil
Full Capacity  Can hire externally  Yes  Take extra staff or pay overtime  RC = Extra cost of labour
Full Capacity  Can hire externally  No  RC = Opportunity Cost of diverting labour (Lost contribution + Extra Labour
Cost)

Typical Relevant Cash Flows

1. Purchase price of new machine
2. Sale proceed of old machine (opportunity benefit forgone)
3. Scrap/disposal proceeds on new asset bought
4. Take machinery from another department  RC = lost Contribution from other dept
5. Hire machinery from outside  RC = Extra cost of hire machine

Items that are not relevant

1. Depreciation is a sunk cost
2. Original Purchase cost is not relevant cost
3. NBV of existing machinery is not relevant cost