Global Chemical Company (GCC) recently received an order for a product that it does not normally produce. Since the company has spare production capacity, management are considering accepting the order. In analysing the decision, the assistant accountant is compilin8 the relevant costs of producing the order. Production of the special order would require 8000 kilograms of theolite. Global Chemical Company does not use theolite for its regular product, but the firm has 8000 kilogram of the chemical on hand from the days when it used theolite regularly. The theolite could be sold to a chemical wholesaler for $14 500. The carrying amount of the theolite is $2 per kilogram. Global Chemical Company could buy theolite for $2.40 per kilogram.
1. What is the relevant cost of theolite for the purpose of analysing the special order decision?
2. Discuss each item of numerical data given in the exercise with regard to its relevance in making the decision.