Question

The Tolar Corporation has 500 obsolete desk calculators that are carried in inventory at a total...

The Tolar Corporation has 500 obsolete desk calculators that are carried in inventory at a total cost of $720,000. If these calculators are upgraded at a total cost of $110,000, they can be sold for a total of $170,000. As an alternative, the calculators can be sold in their present condition for $50,000.

What is the financial advantage (disadvantage) to the company from upgrading the calculators?

Multiple Choice

  • $10,000

  • ($670,000)

  • ($60,000)

  • $120,000

Business   Accounting   
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Answer #1

In case of obsolete stock the relevant cost is additional cost that we incur to sale the product

Alterative 1 :

Sales price = $170000

Less : upgradation cost = $110000

-----------------------------------------------------------

Net income = $60000

Alternative 2

Sales price = $50000

Less : additional cost = $0

-------------------------------------------

Net income. = $50000

Son incase of upgrading the calculator, income is $10000 more ( $60000 - $50000 )

Financial advantage in upgradation is $ 10000

Option 1 is correct

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