Question

Ripka Company has 20,000 units in inventory that had a production cost of $4 per unit. These units cannot be sold through normal channels due to a significant technology change. These units could be reworked at a total cost of $30,000 and sold for $35,000. Another alternative is to sell the units to a junk dealer for $10,500. The relevant cost for Ripka to consider in making its decision is Select one: a. $110,000 for reworking the units b. $30,000 for reworking the units c. $80,000 of original product costs d. $35,000 for selling the units to the junk dealer

Answer 1

Ripka Company

The relevant cost for Ripka to consider in making its decision is:

b. $30,000 for reworking the units

Step-by-step explanation:

a) Data and Calculations:

Inventory = 20,000 units

Production cost already incurred = $4 per unit

Total production cost = $80,000 (20,000 * $4)

Total Cost of Reworking the units = $30,000

Sales revenue after rework = $35,000

Alternative sales revenue without reworking = $10,500

b) Relevant cost is the avoidable cost. The cost that can be avoided in this instance is the cost of reworking the units, amounting to $30,000.