nments: ACG 2071- x C Secure https/newconnect.mheducation.com/flow/connect html

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nments: ACG 2071- x C Secure https/newconnect.mheducation.com/flow/connect html Chapter 23 6 10 Varto Company has 7,000 units of its sole product in inventory that it produced last year at a cost of $22 each. This year's model is superior to last year's, and the 7000 units cannot be sold at last year's regular selling price of $35 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $8 each or (2) they can be reworked at a cost of $125,000 and then sold for $25 each. Prepare an analysis to determine whether Varto should sell the products as is or rework them and then sell them. 1.25 2 00-37-21 cost of processing Sell as is

Explanation / Answer

Incremental Revenue and Cost of Additional Processing:

The company should not opt for reworking.

The production cost of $ 22 each incurred last year is a sunk cost, and not relevant.

Revenue if processed further ( 7,000 x $ 25) $ 175,000 Revenue if sold as is ( 7,000 x $ 8) 56,000 Incremental revenue 119,000 Less: Incremental cost of processing 125,000 Incremental Net Income ( Loss) (6,000) The company should Sell as is

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