Question

6: Relevant cost of capital is Rs.2950, carrying
cost of inventory is Rs.6700, find out the
incremental cost.
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Answer 1

Explanation:

Relevant incremental cost = Relevant carrying cost of inventory - Relevant opportunity cost of capital

= $6700 - $2950 = $3,750

Answer 2

Given:

Relevant cost of capital = Rs.2950

Cost of the inventory = Rs.6700

To Find:

The  incremental cost.

Solution:

It is the entire cost incurred as a result of procuring an extra unit of a commodity.

Using the formula of incremental cost -

Applicable incremental cost = Total inventory carrying cost - Total opportunity cost of capital

Thus, substituting the values -

= 6700 - 2950

= 3,750

Answer: The  incremental cost is Rs. 3,750