Question

More Parts Liquidators specializes in buying excess parts inventories for resale or to incorporate into other products. They recently purchased parts for $100,000 and they have a buyer willing to pay $120,000. The company can also incorporate these parts into a new product at a cost of $75,000 and sell the new product for $190,000. What should More Parts Liquidators do?

Answer 1

Answer:

Sell the parts without any processing because the profit is higher ($20,000 vs $15,000)

Explanation:

they have two options:

• option A, sell the parts as they are and make $20,000 in profits (= $120,000 - $100,000).
• option B, further process the parts by spending $75,000 and sell them for $190,000, and make only $15,000 in profits (= $190,000 - $100,000 - $75,000).

The best option is A, to sell the parts without any processing because the profit is higher and they do not have to spend more money.