Question

Gloster Corp. had spent $240,000 to produce metal housings for a line of test equipment that...

Gloster Corp. had spent $240,000 to produce metal housings for a line of test equipment that is now defunct. The company can remake the housings to fit another line of equipment at a cost of $64,000; the housings would then have a market value of $136,000. Alternatively, the company could scrap the housings, which would generate revenues of $88,000.

Compute the differential profit for the better alternative: $_________________

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Answer #1
OPTION 1 : REMAKE THE HOUSINGS
Particulars Amount
Cost $64,000.00
market value $1,36,000.00
incremental profit (Market value - cost ) $72,000.00
OPTION 2 : SCRARP THE HOUSING
Particulars Amount
revenue from scarp $88,000.00
Differential profit (option 2- option 1)
$16,000.00
As there in more profit of $16,000
by scrapping of housing
it is better to scrap the housing
I hope my workings are enough to understand
Thanks in advance for giving me positive ratings
for any clarification feel free to comment on it
May God bless you and have a wonderful day
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