Question

Armstrong Corporation manufactures bicycle parts. The company currently has a $19,800 inventory of parts that have become obsolete due to changes in design specifications. The parts could be sold for $7,300, or modified for $10,300 and sold for $20,900Calculate the benefit under each alternative for disposing of the obsolete parts.

Answer 1

Answer:

If sold without Modification, Armstrong Corporation will incur a loss of $12,500.

If the Corporation modifies the Stock and then Sell it, its loss will be $9,200.

Explanation:

Workings

Without Modification:

Selling Price                   = 7,300

Less: Cost of Inventory = 19,800

Loss                                = $12,500.

Modification:

Selling Price                   = 20,900

Less: Cost of Inventory = 19,800

        Modification Cost = 10,300

Loss                                = $9,200.

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