Question

Vehicle Accessories has an inventory of 490 obsolete remote entry keys that are carried in inventory at a manufacturing cost of $77 420 Production supervisor Lee Lewis must decide to do one of the following: • Process the inventory further at a cost of $21,000, with the expectation of selling it for $33,000 - Scrap the inventory for a sales price of $5,500 What should Lewis do? Present fures to support your decision Prepare the Selor Process Further analysis (Enter a 'ofor any zero amounts. Use a minus sign or parentheses when the scrap amount exceeds the process further amount.) Incremental Analysis Sell As is Sell as is Process Sell of Process Further Decision (Scrap Further Difference Revenues Les Extra cost of processing further Net benefits to operating income

Answer 1

Calculate the requirement as follows: Α в с D Sell As Is Scrap Process Further Difference Incremental Analysis Sell or process further 2 Revenues 3 Less: Extra cost of processing further 4. Net benefit (loss) to operating income $ 5,500 $ - S .500S 33,000 S 21,000 $ 12.000 $ 27,500 21,000 6,500 S 5 6 Lewis should process further because processing further will increase the operating income by $6500