Chapter 11, Problem 11.21E

Disposal of assets. Answer the following questions.

1. 1. A company has an inventory of 1,300 assorted parts for a line of missiles that has been discontinued. The inventory cost is $71,000. The parts can be either (a) remachined at total additional costs of $27,500 and then sold for $31,500 or (b) sold as scrap for $6,000. Which action is more profitable? Show your calculations.
2. 2. A truck, costing $102,500 and uninsured, is wrecked its first day in use. It can be either (a) disposed of for $14,000 cash and replaced with a similar truck costing $105,500 or (b) rebuilt for $86,000 and thus be brand-new as far as operating characteristics and looks are concerned. Which action is less costly? Show your calculations.