Question

Truck Components has an inventory of 500 obsolete remote entry keys that are carried in inventory at a manufacturing cost of $78,500 Production supervisor Andy Johns must decide to do one of the following: • Process the inventory further at a cost of $10,000, with the expectation of sing it for $35.000 Scrap the inventory for a sales price of $3,000 What should Johns do? Present figures to support your decision Prepare the Sellor Process Further analysis (Enter a "o" for any zero amounts. Use a minus sign or parentheses when the scrap amount exceeds the process further amount) Incremental Analysis Sell of Process Further Decision Revenues Sell Asis (Scrap) Process Further Difference Less Extra cost of processing further Net benefit oss) to operating income Johns should because processing further wil operating income by $

Answer 1

Answer

Incremental Analysis
Sell or Process further decision	Sell as it is	Process further	Difference
Revenue	$       3,000	$            35,000	$   32,000
Less: Cost	$              -	$            19,000	$   19,000
Net benefit	$       3,000	$            16,000	$   13,000

John should

process further

because further processing will

increase

Operating income by $

13000

In case of any doubt, please comment.