Pratt Company has old inventory on hand that cost $12,000. Its scrap value is $16,000. The inventory could be sold for $40,000 if manufactured further at an additional cost of $12,000. What should Pratt do?

Question

Quizplus · Accepted Answer

Manufacturing further and selling for $40,000 will result in a profit of $16,000 ($40,000 - $12,000 for additional manufacturing cost - $12,000 for original cost). This is a better option than disposing of the inventory or selling for scrap value as it generates more revenue for the company. Holding at its $12,000 cost would not benefit the company as it is not generating any additional revenue.

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