Question

Marigold Corp. has old inventory on hand that cost $12000. Its scrap value is $14000. The inventory could be sold for $30000 if manufactured further at an additional cost of $12000. What should Marigold do?

Answer 1

Answer: Manufacture Inventory further and sell for $30,000

Explanation:

To make this decision we would have to calculate the benefit that could be acquired from manufacturing further.

Amount net benefit if manufactured further and sold for $30,000

= 30,000 - 12,000

= 18,000

There would be a net benefit of $18,000 of manufactured further.

If Marigold Corp. sold at the scrap value there would get $14,000.

We can see that Manufacturing further and selling for $30,000 is the better option as it brings more money. It should therefore be chosen.

Answer 2

Answer:

manufacture further.

Explanation:

The company would always seek the option that maximizes its income. As such, all the options available to the company would be considered in light of the income that would eventually go to the company.

If the inventory is sold as scrap,

Income = $14,000

If it is manufactured further,

Income = $30,000 - $12,000

= $18,000

Since manufacturing it will generated a greater income considering the additional cost and the selling price, the company should manufacture further.