Varto Company has 12,200 units of its sole product in inventory that it produced

Question

Varto Company has 12,200 units of its sole product in inventory that it produced last year at a cost of $26 each. This year’s model is superior to last year’s, and the 12,200 units cannot be sold at last year’s regular selling price of $52 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $14 each, or (2) they can be reworked at a cost of $177,900 and then sold for $28 each. Prepare an analysis to determine whether Varto should sell the products as is or rework them and then sell the products as is or rework them and then sell them.

incremental revenue and cost of aditional processing

revenue if processed further    __________$

revenue if sold as is __________$

incemental revenue    __________$

(add or less) incremental cost of processing    __________$

incremental net income(loss)    __________$

the company should    (process further/sell as is)

Explanation / Answer

Answer:

revenue if processed further (12,200*28)

341600

revenue if sold as is (12200*14)

170800

incemental revenue

170800

(add or less) incremental cost of processing

177900

incremental net income(loss)

-7100

the company should

sell as it is

As we can see that incremental net loss of $(7100 )=(177900-170800) so company should sell the product as it is and not go for further processing

revenue if processed further (12,200*28)

341600

revenue if sold as is (12200*14)

170800

incemental revenue

170800

(add or less) incremental cost of processing

177900

incremental net income(loss)

-7100

the company should

sell as it is

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