Question

Bonita Industries has old inventory on hand that cost $19500. Its scrap value is $26000. The inventory could be sold for $65000 if manufactured further at an additional cost of $19500. What should Bonita do? a) Sell the inventory for $26000 scrap value b) Dispose of the inventory to avoid any further decline in value c) Hold the inventory at its $26000 cost d) Manufacture further and sell it for $65000.

Answer 1

D) Manufacture further and sell it for $65,000.

Step-by-step explanation:

If Bonita decides to sell its inventory as scrap it will earn $26,000, so its profit will be $6,500 (= $26,000 - $19,500).

If they decide to further manufacture the inventory then they will be able to sell it for $65,000, and it will make a $26,000 profit (= $65,000 - $19,500 - $19,500). This is the best choice.