Rosen, Inc.has 10,000 obsolete calculators, which are carried in inventory at a cost of $20,000.If the calculators are scrapped, they can be sold for $1.10 each (for parts).If they are repackaged, at a cost of $15,000, they could be sold to toy stores for $2.50 per unit.What alternative should be chosen, and why?
A)Scrap; profit is $1,000 greater.
B)Repackage; revenue is $5,000 greater than cost.
C)Scrap; incremental loss is $9,000.
D)Repackage; receive profit of $10,000.

Question

Quizplus · Accepted Answer

Scrap option: Selling for parts at $1.10 each for 10,000 calculators yields $11,000, which is $9,000 less than the carrying cost of $20,000, but no additional costs are incurred. Repackage option: Repackaging costs $15,000, and selling at $2.50 each for 10,000 calculators yields $25,000. The total cost (original $20,000 + repackaging $15,000) is $35,000, leading to a loss of $10,000. Thus, scrapping results in a smaller loss by $1,000 compared to repackaging.