Varto Company has 12,400 units of its sole product in inventory that it produced last year at a cost of $23 each. This year’s model is superior to last year’s, and the 12,400 units cannot be sold at last year’s regular selling price of $51 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $13 each, or (2) they can be reworked at a cost of $254,100 and then sold for $33 each. Prepare an analysis to determine whether Varto should sell the products as is or rework them and then sell them. INCREMENTAL REVENUE AND COST OF ADDITIONAL PROCESSING Revenue if processed further Revenue if sold as isIncremental revenue Add: Incremental cost of processingIncremental net income(Loss) The company should:
Varto Company has 12,400 units of its sole product in inventory that it produced last year at a cost of $23 each. This year’s model is superior to last year’s, and the 12,400 units cannot be sold at last year’s regular selling price of $51 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $13 each, or (2) they can be reworked at a cost of $254,100 and then sold for $33 each. Prepare an analysis to determine whether Varto should sell the products as is or rework them and then sell them.
INCREMENTAL REVENUE AND COST OF ADDITIONAL PROCESSING
Revenue if processed further
Revenue if sold as isIncremental revenue
Add: Incremental cost of processingIncremental net income(Loss)
The company should:
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