Question

Varto Company has 8,800 units of its sole product in inventory that it produced last year at a cost of $25 each. This year’s model is superior to last year’s, and the 8,800 units cannot be sold at last year’s regular selling price of $51 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $13 each or (2) they can be processed further at a cost of $121,800 and then sold for $26 each. Should Varto sell the products as is or process further and then sell them?

INCREMENTAL REVENUE AND COST OF ADDITIONAL PROCESSING
Revenue if processed further
Revenue if sold as is
Incremental revenue
Incremental net income(Loss)
The company should:

Answer 1

Incremental Revenue and additional cost of processing:

Particulars	Amount ($)	Calculation
Revenue if processed further	228,800	=8,800*26
Revenue if sold as is	114,400	=8,800*13
Incremental Revenue	114,400	=228,800-114,400
Less: Further processing cost	121,800
Incremental Net Income/(Loss)	(7,400)	=121,800-114,400

The company should sell the inventory as it as it since further processing the inventory leads to an incremental loss of $ 7400.