Question

The Tolar Corporation has 600 obsolete desk calculators that are carried in inventory at a total cost of $864,000. If these calculators are upgraded at a total cost of $200,000, they can be sold for a total of $260,000. As an alternative, the calculators can be sold in their present condition for $40,000 What is the financial advantage (disadvantage) to the company from upgrading the calculators?

Answer 1

Answer:

The financial advantage over option 2 is $ 20 000 and $ 60 000 in total sales value.

Explanation:

The company has 2 options for the obsolete desk calculators. They can either upgrade them or sell them as they are. We need to compare the 2 options to evaluate their advantage or disadvantage.

To upgrade the calculators we need to spend $200000. However we will then be able to sell the calculators for $260000. This equates to a $60 000 gain

Under option 2 we will just sell the calculators as is for $ 40 000.

Option 1 is the better option. The financial advantage over option 2 is thus $ 20 000 and $ 60 000 in total.