Question

The Manassas Company has 55 obsolete keyboards that are carried in inventory at a cost of $9,600. If these keyboards are upgraded at a cost of $7,900, they could be sold for $18,100. Alternatively, the keyboards could be sold “as is” for $7,300. What is the net advantage or disadvantage of re-working the keyboards?

Answer 1

Calculation of net advantage/disadvantage of re-working
	$	Working
Incremental revenue after rework	10800	18100-7300
Less: Incremental cost of rework	7900	Given
Net advantage	2900
Therefore,
Total advantage= Net advantage per keyboard*Number of keyboard
	$(2900*55)
	$159,500
Please note that cost of $9600 has not been considered as it is a sunk cost, therefore not relevant for decision making.