Hodge Incorporated has some material that originally cost $74,600. The material has a scrap value of $57,400 as is, but if reworked at a cost of $1,500, it could be sold for $54,400. What would be the financial advantage (disadvantage) of reworking and selling the material rather than selling it as is as scrap?
A) ($79,100)
B) ($21,700)
C) ($4,500)
D) $52,900

Question

Quizplus · Accepted Answer

The financial advantage of reworking and selling the material rather than selling it as is can be calculated by comparing the net proceeds from each option. Selling as is would yield $57,400. Reworking costs $1,500 and the material could then be sold for $54,400, resulting in net proceeds of $52,900 ($54,400 - $1,500). The difference between selling as is ($57,400) and reworking ($52,900) is $4,500, which represents a financial disadvantage of reworking the material.

Hodge Incorporated Has Some Material That Originally Cost $74,600