Required information [The following information applies to the questions display

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Required information [The following information applies to the questions displayed below.] Armstrong Corporation manufactures bicycle parts. The company currently has a $19,900 inventory of parts that have become obsolete due to changes in design specifications. The parts could be sold for $7,400, or modified for $10,400 and sold for $21,100. Required: 1. Identify the relevance of the data given in the exercise to the decision about what to do with the obsolete parts. Current sales value for unmodified parts Sales value for modified parts Modification costs Current book value of inventory

Explanation / Answer

Ans)

Benefit if parts are sold with out modification = 7400

Net benefit if parts are sold after being modified = Sales value - Modification costs

21,100 - 10400

= 10700

As revenue is high after modification it is better to modify and sell the bicycles.

Book value of 19,900 is already sunk cost irrelevant for decision making

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