Question

varto company has 11,200 units of its product in inventory that it produced last year at a cost of $153,000. this years model is better than last years, and the 11,200 units cannot be sold at last years normal selling price of $43 each. varto has two alternatives for these units:
(1) they can be sold as is to a wholesaler for $100,800 or
(2) they can be processed further at an additional cost of $207,600 and then sold for $302,400.
(a) prepare a sell as is or process further analysis of income effects.
(b) should varto sell the products as is or process further and then sell them?
(a) sell or process analysis
revenue
costs
income
incremental income (loss) to sell as is
(b) the company should:

Explanation:

Step1: Calculate revenue for each option

• Sell as is: Revenue = $100,800
• Process further: Revenue = $302,400

Step2: Calculate costs for each option

• Sell as is: Costs = $0 (no additional cost)
• Process further: Costs = $207,600

Step3: Calculate income for each option

• Sell as is: Income = Revenue - Costs = $100,800 - $0 = $100,800
• Process further: Income = Revenue - Costs = $302,400 - $207,600 = $94,800

Step4: Calculate incremental income (loss) to sell as is

Incremental income (loss) = Income (sell as is) - Income (process further) = $100,800 - $94,800 = $6,000

Answer:

(a)

Sell or Process Analysis	Sell As Is	Process Further
Costs	$0	$207,600
Income	$100,800	$94,800
Incremental Income (loss) to sell as is	$6,000

(b) The company should sell the products as is.