Question

Pratt Company has old inventory on hand that cost $15,000. Its scrap value is $20,000. The inventory could be sold for $50,000 if manufactured further at an additional cost of $15,000. What should Pratt do

Answer 1

Answer:

Pratt Company should incur additional manufacturing cost of $15,000, since they stands to gain more.

Explanation:

Note that every company usually place more importance to profit first, and tries to reduce losses. if Pratt Company goes with the option of selling for the scrap value, it's profit amounts to only $5,000 ($20,000-$15,000). However, manufacturing further despite the additional cost gives Pratt Company a profit from the transaction of $35,000 ($50,000-$15,000).

So, profit wise, Pratt should incur additional manufacturing cost of $15,000, since they stands to gain more.