Namov Company has old inventory on hand that cost $12,000.Its scrap value is $16,000.The inventory could be sold for $38,000 if manufactured further at an additional cost of $12,000.What should Narst do?

Question

Quizplus · Accepted Answer

Manufacturing the inventory further and selling it for $38,000 will result in the highest net profit, which is $14,000 ($38,000 - $12,000 - $12,000). The scrap value and holding the inventory at its cost will result in a loss, and disposing of the inventory will result in no profit or loss, but it will not maximize the potential profit. Therefore, manufacturing further and selling it for a higher price is the best choice.

Namov Company Has Old Inventory on Hand That Cost $12,000