Exhibit 7-1
Talmont Products has dropped the price per unit of its smart phone product from $1,060 to $500.There are some units in work-in-process inventory that have costs of $600 per unit associated with them.Talmont could sell these units in their current state for $400.It will cost Talmont $40 to complete these units so that they can be sold for $500 each.
-Refer to Exhibit 7-1.When the incremental revenues and costs are analyzed,the company is better off by:

Question

Quizplus · Accepted Answer

Completing the units will result in a loss of ($600 - $500) = $100 per unit. However, if the units are sold in their current state, there will be a loss of ($600 - $400) = $200 per unit. It will cost $40 to complete each unit, but the incremental revenue gained from completing the units is ($500 - $400) = $100 per unit. Therefore, the incremental profit gained from completing the units is ($100 - $40) = $60 per unit. Thus, completing the units is the better choice as it results in higher incremental profit per unit.

Exhibit 7-1 Talmont Products Has Dropped the Price Per Unit of Its