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Edison Company has 5,000 obsolete desk lamps that are carried in inventory at a manufacturing cost...

Edison Company has 5,000 obsolete desk lamps that are carried in inventory at a manufacturing cost of $45,000. If the lamps are reworked for $20,000, they could be sold for $37,000. Alternatively, the lamps could be sold for $9,000 as scrap. What should Edison Company do with the lamps? Why? Be sure to show your supporting calculations for your recommended course of action.

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Answer #1
Sold the lamp after rework:
$
Sale price 37000
Less: rework cost 20000
Incremental revenue 17000
Sold the lamp as scrap:
$
Incremental revenue
(Scrap value) 9000
Edison company should sell the lamps after rework since it results in an incremental revenue of $ 17000
Note:Manufacturing cost of $45000 is a sunk cost since it is already incurred and hence not relavant for decision making
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