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Varto Company has 12,800 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 12,800 units cannot be sold at last year’s regular selling price of $44 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $9 each or (2) they can be processed further at a cost of $262,100 and then sold for $29 each. Should Varto sell the products as is or process further and then sell them?

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Answer:

$6,100

Explanation:

Varto Company

Incremental Revenue and cost of additional processing

Revenue if reworked further (12,800*29)$371,200

Revenue is sold as is (12,800*9)$115,200

Incremental revenue ($371,200-$115,200)$256,000

Less incremental cost of reworking $262,100

Incremental net income($6,100)

Therefore the company should elect to sell the products as it is and not rework them because reworking them would result in a loss of $6,100 of revenue

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