Question

The Tolar Corporation has 400 obsolete desk calculators that are carried in inventory at a total cost of $26,800. If these calculators are upgraded at a total cost of $10,000, they can be sold for a total of $30,000. As an alternative, the calculators can be sold in their present condition for $11,200. What is the financial advantage (disadvantage) to the company from upgrading the calculators?
a. $20,000
b. $8,800
c. ($8,000)
d. ($18,000)

Answer 1

Answer:

b. $8,800

Explanation:

Alternative 1

Cost of calculators with upgrade = $26,800 + $10,000 = $36,800

Selling Price of Calculators after upgrade =$30,000

Loss on selling after upgrade = $36,800-$30,000 =$6,800 loss

Alternative 2

Selling price of calculators without upgrade = $11,200  

Loss on selling without upgrade = $26,800 - $11,200 = $15,600

Therefor, it is advisable to upgrade the calculators because Tolar Corporation would incur loss of only $6,800 after the upgrade. If it does not upgrade, it will incur a loss of $15,600.

If Tolar Corporation went for the upgrade, it will have a financial advantage of $8,800 ($15,600-$6,800)