A company decides to close down its plastics division. It has on hand 20 tonnes of styrene monomer, a raw material that has a market price of $700 per tonne, which had been originally purchased at $650 per tonne. Given that the company has no use for the styrene monomer, and that it would cost the company $5 000 to store it, what is the value of the 20 tonnes of styrene monomer to the company?
A)$14 000
B)$13 000
C)$0
D)-$5 000

Question

Quizplus · Accepted Answer

The raw material has a market value of $700 per tonne, and the company has 20 tonnes. Therefore, the market value of the raw material is 20 x $700 = $14 000. Since it would cost the company $5 000 to store the raw material, they would still make a profit of $9 000 ($14 000 - $5 000) by selling it. Therefore, the value of the 20 tonnes of styrene monomer to the company is $14 000.

A Company Decides to Close Down Its Plastics Division