Question

Mallory's Video Supply has changed its focus tremendously and as a result has dropped the selling price of DVD players from $45 to $38. Some units in the work-in-process inventory have costs of $30 per unit associated with them, but Mallory can only sell these units in their current state for $22 each. Otherwise, it will cost Mallory $11 per unit to rework these units so that they can be sold for $38 each. How much is the financial impact if the units are processed further?

A.$16 per unit profit

B.$12 per unit loss

C.$3 per unit loss

D.$5 per unit profit

Answer 1

The financial impact if the units are processed further is a loss of $3 per unit, as the rework cost and associated cost exceed the selling price after rework.

Step-by-step explanation:

The financial impact if Mallory's Video Supply processes the DVD players further can be determined by comparing the cost to rework each unit with the additional revenue that can be obtained from the increased selling price. If processed further, the cost to rework each unit is $11, and the selling price after the rework would be $38. Therefore, for each unit, the profit would be the selling price ($38) minus the sum of the cost associated with it ($30) and the rework cost ($11), which results in a profit of $38 - ($30 + $11) = -$3 per unit. Hence, the financial impact if the units are processed further is a loss, specifically option C: $3 per unit loss.