Question

The Tolar Corporation has 400 obsolete desk calculators that are carried in inventory at a total cost of $26,800. If these calculators are upgraded at a total cost of $10,000, they can be sold for a total of $30,000. As an alternative, the calculators can be sold in their present condition for $11,200. What is the financial advantage (disadvantage) to the company from upgrading the calculators?

a) $8,800
b) $20,000
c) ($8,000)
d) ($18,000)

Answer 1

The financial advantage to Tolar Corporation from upgrading the calculators is $8,800, as it reduces the loss from not upgrading, which is calculated as the difference in net revenue between selling without upgrading and after upgrading.Thus the correct option is a.

Step-by-step explanation:

The financial advantage or disadvantage of upgrading the calculators for Tolar Corporation can be assessed by comparing the cost of upgrading and additional revenue generated to the revenue if sold without upgrading. If upgraded, the obsolete desk calculators will be sold for a total of $30,000. The cost to upgrade is $10,000 and the initial inventory cost is $26,800. The net revenue after upgrade would be the selling price minus the total costs (initial cost + upgrade cost), which is $30,000 - ($26,800 + $10,000) = ($6,800). Without upgrading, they can be sold for $11,200, which is the initial inventory value minus the selling price, $11,200 - $26,800 = ($15,600). The difference between not upgrading and upgrading in terms of financial loss reduction is $15,600 - ($6,800) = $8,800. Hence, the financial advantage to the company from upgrading the calculators is $8,800.