Question

A company has an inventory of 2.300 different parts for a line of cars that nas been discontinued. The net book value (NBV) of this inventory is $57,000. The parts can be either remachined at a total additional cost of $28,600 and then sold for $37,000 or sold as-is for $2,350.

Required: Calculate the net benefit or loss of remachining the parts instead of scrapping them.

Answer 1

To calculate the net benefit or loss of remachining the parts instead of scrapping them, we need to compare the net proceeds from remachining and selling the parts to the net proceeds from selling the parts as-is.

If the parts are remachined and then sold, the net proceeds would be $37,000 (the revenue from selling the remachined parts) minus $28,600 (the cost of remachining the parts), which equals $8,400.

If the parts are sold as-is, the net proceeds would be $2,350 (the revenue from selling the parts as-is).

Therefore, the net benefit of remachining the parts instead of scrapping them would be $8,400 (the net proceeds from remachining and selling the parts) minus $2,350 (the net proceeds from selling the parts as-is), which equals $6,050.

Step-by-step explanation: