Question

Exercise 23-7 Scrap or rework LO A1 Varto Company has 11,000 units of its sole product in inventory that it produced last year at a cost of $24 each. This year's model is superior to last year's, and the 11,000 units cannot be sold at last year's regular selling price of $47 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $12 each, or (2) they can be reworked at a cost of $150,000 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. points eBook INCREMENTAL REVENUE AND COST OF ADDITIONAL PROCESSING Revenue if processed further Revenue if sold as is Incremental revenue Incremental net income(Loss) The company should:

Answer 1

	per unit	Total number of units	Total Amount
Revenue if processed further	25	11000	2,75,000
Rework Cost Associated with further processing			1,50,000
Net Revenue (if processed further)			1,25,000
Revenue if sold as it is
Net Selling price	12	11000	1,32,000
Incremental net loss from further processing			-7,000
The Company should sell the inventory as it is as it leads to an additional income of $ 7,000 ($1,32,000 - $1,25,000).
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