Answer:
Alternative of cleaning and shipping is better as loss value is less.
Relevant cost of this alternative is $23,000 incurred for cleaning and shipping.
Explanation:
Evaluating both the proposals
In case the goods are sold as it is then net cost/ loss = Carrying value of inventory - Sales Revenue
= $125,000 - $45,000 = $80,000
In case the goods are cleaned and shipped then
Total cost = $125,000 + $23,000 = $148,000
Revenue = $80,000
Net loss/ cost = $148,000 - $80,000 = $68,000
Thus Since the loss value is less i alternative 2 that is of cleaning and shipping, it shall be chosen.
The relevant cost of that alternative is $23,000 incurred in cleaning and shipping.
