Question

Tawstir Corporation has 400 obsolete personal computers that are carried in inventory at a total cost of $576,000. If these computers are upgraded at a total cost of $100,000, they can be sold for a total of $160,000. As an alternative, the computers can be sold in their present condition for $40,000. What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?

Answer 1

Answer:

If the company upgrades the units, income will increase by $20,000 (compared to sell as-is).

Explanation:

Giving the following information:

Units= 400

If these computers are upgraded at a total cost of $100,000, they can be sold for a total of $160,000.

As an alternative, the computers can be sold in their present condition for $40,000.

We won't take into consideration costs before the upgrade, because they will remain in both options.

Sell as-is:

Effect on income= $40,000 increase

Continue processing:

Effect on income= 160,000 - 100,000= $60,000 increase

If the company upgrades the units, income will increase by $20,000 (compared to sell as-is).