The Tingey Company has 500 obsolete microcomputers that are carried in inventory

Question

The Tingey Company has 500 obsolete microcomputers that are carried in inventory at a total cost of $720,000.

If these microcomputers are upgraded at a total cost of $100,000, they can be sold for a total of $160,000.

As an alternative, the microcomputers can be sold in their present condition for $50,000.

What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?
1) $110,000 advantage.
2) $660,000 disadvantage.
3) $ 10,000 advantage.
4) $ 60,000 advantage.

show work please

Explanation / Answer

What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition? 3) $ 10,000 advantage. $720,000 is sunk cost & is not relevant for decision making. Now if we upgrade at a cost of $100,000, we can sell for $160,000. So net gain is $60,000 If we don;t upgrade & just sell as is condition, the gain is $50,000 So net advantge from upgrading is $60,000 - $50,000 = $10,000

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