Zanatech's market for its remote control has changed significantly, and Zanatech has had to drop the selling price per unit from $45 to $38.There are some units in the work in process inventory that have costs of $30 per unit associated with them.Zanatech can sell these units in their current state for $22 each.It will cost Zanatech $11 per unit to rework these units so that they can be sold for $38 each.A new employee looks at the analysis and exclaims, "We'll lose money with either of these alternatives! Let's just throw these units in the trash!" What effect will this option have on net income?
A)Profit will decrease by $45 per unit for each unit discarded.
B)Profit will decrease by $30 per unit for each unit discarded.
C)Profit will increase by $11 per unit since the completion costs will not have to be incurred.
D)Profit will decrease by $5 per unit for each unit discarded.

Question

Quizplus · Accepted Answer

Throwing the units away means Zanatech loses the $30 per unit already spent, which directly decreases profit by that amount since those costs are sunk and cannot be recovered.

Zanatech's Market for Its Remote Control Has Changed Significantly, and Zanatech