ACCA F5 Performance Management Exam Practice 2025 – All-in-One Study Resource

The relevant cost of materials that are in stock and will not be replaced is best understood through the lens of opportunity cost. Opportunity cost refers to the value of the next best alternative that is foregone when a decision is made. In this context, if materials are already in stock and cannot be replaced, the relevant cost involves considering what benefits or profits could have been derived from using those materials for different purposes rather than for the intended use.

When making decisions regarding the allocation of resources, it is crucial to evaluate potential alternative uses of the materials. Even though they are already in stock, the opportunity cost highlights the lost potential income or benefits that could arise if the materials were deployed differently. This perspective aligns with the fundamental principles of relevant costing, where one must consider future costs and benefits arising from potential decisions rather than historical or sunk costs.

In contrast, reflecting on historical costs or the price paid when the materials were first acquired does not factor into decision-making since those costs have already been incurred and cannot be altered. The current market price of materials is also not relevant in this situation because it concerns materials that will not be replaced, meaning market fluctuations do not impact the cost for this specific stock. Therefore, focusing on the opportunity cost associated with alternative uses provides the