UU Company has been asked to quote for a special contract. The following information about the material needed has been given:
Material X:
Book value Scrap value Replacement cost
$5.00 per kg $0.50 per kg $5.50 per kg
The contract requires 10 kgs of Material X. There are 250 kgs of this material in inventory which was purchased in error over two years ago. If Material X is modified, at a cost of $2 per kg, it could then be used as a substitute for material Y which is in regular use and currently costs $6 per kg.
What is the relevant cost of the materials for the special contract?