Question

Chap 23 Homework Varto Company has 7,400 units of its sole product in inventory that it produced last year at a cost of $32 each. This year's model is superior to last year's, and the 7.400 units cannot be sold at last year's regular selling price of $45 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $8 each or (2) they can be processed further at a cost of $162,800 and then sold for $29 each. Should Varto sell the products as is or process further and then sell them? INCREMENTAL REVENUE AND COST OF ADDITIONAL PROCESSING points Revenue if processed further Revenue if sold as is Skipped incremental revenue oBook Incremental net income (Loss) The company should References

Answer 1

INCREMENTAL REVENUE AND COST OF ADDITIONAL PROCESSING
Revenue if processed further (29*7400)	214600
Revenue if sold as it (8*7400)	(59200)
Incremental revenue	155400
Incremental cost	(162800)
Incremental net income /(loss)	-7400

The company should sell the units as it is as there is a incremental loss from further processing amounting to -7400

#The unit cost of $ 32 is a sunk cost as such cost was incurred in past to manufacture the product and has no relevance to decision making as to sell the units as it is or processed further .