Question

Sunland Company has old inventory on hand that cost $20250. Its scrap value is $27000. The inventory could be sold for $67500 if manufactured further at an additional cost of $20250. What should Sunland do? a) Dispose of the inventory to avoid any further decline in value b) Hold the inventory at its $20250 cost c) Manufacture further and sell it for $67500 d) Sell the inventory for $27000 scrap value.

Answer 1

Th answer is: C) Manufacture further and sell it for $67500

Step-by-step explanation:

We can analyze the three possible scenarios:

1. Sell the inventory at scrap value: $27,000 - $20,250 = $6,750 in profit
2. Manufacture further and sell: $67,500 - ($20,250 + $20,250) = $67,500 - $40,500 = $27,000 in profit
3. Hold the inventory at cost: $0 profit

If the company manufactures further and sells, it will make $27,000 in profit, this is the best option.