Question

Pratt company has inventory on hand that cost $15,000. its scrap value is $20,000. the inventory could be sold for $50,000 if manufactured further at an additional cost of $15,000. what should pratt do?

Answer 1

Pratt Company should manufacture the goods further and then sell them, as this will yield a profit of $20,000 compared to a $5,000 profit from scrapping the inventory.

Step-by-step explanation:

Pratt Company is faced with a decision regarding their inventory with a cost of $15,000. They can either scrape the inventory for $20,000 or sell it for $50,000 after further manufacturing at an additional cost of $15,000. To find the most profitable option, we compare the net benefit of each action. Scrapping the inventory will yield a profit of $20,000 - $15,000 = $5,000. Alternatively, selling the inventory after additional manufacturing will result in a profit of $50,000 - $15,000 (additional cost) - $15,000 (original cost) = $20,000. Therefore, it is more profitable for Pratt to manufacture the goods further and sell them for the higher amount.