Question

Varto Company has 7,000 units of its sole product in inventory that it produced last year at a cost of $22 each. This year’s model is superior to last year’s, and the 7,000 units cannot be sold at last year’s regular selling price of $35 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $8 each or (2) they can be processed further at a cost of $125,000 and then sold for $25 each. Should Varto sell the products as is or process further and then sell them?

Answer 1

Answer:

Sell

Explanation:

The computation is shown below:

In case of proceed further $175,000 (7,000 units × $25)

Less: In case of sold $56,000   (7,000 units × $8)

Revenue increment $119,000

Less: Cost of processing further -$125,000

Incremental net loss -$6,000

As we can see that there is an incremental loss of $6,000 which reflects to sell off the product not proceed further plus