Tawstir Corporation has 400 obsolete personal computers that are carried in inve

Question

Tawstir Corporation has 400 obsolete personal computers that are carried in inventory at a total cost of $576,000. If these computers are upgraded at a total cost of $130,000, they can be sold for a total of $190,000. As an alternative, the computers can be sold in their present condition for $40,000.

What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?

$590,000 disadvantage

$150,000 advantage

$20,000 advantage

$60,000 advantage

The management of Kabanuck Corporation is considering dropping product V41B. Data from the company's accounting system appear below:

All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $220,000 of the fixed manufacturing expenses and $131,000 of the fixed selling and administrative expenses are avoidable if product V41B is discontinued.

According to the company's accounting system, what is the net operating income earned by product V41B? Include all costs in this calculation—whether relevant or not.

$92,000

$(521,000)

$(92,000)

$521,000

What is the net advantage or disadvantage to the company from upgrading the computers rather than selling them in their present condition?

Explanation / Answer

1.

If the company sell the computers after upgrading rather than selling at the present conditions the net income to the company would be as under:

If computers are sold after upgradation, the net income would be as under:

therefore if the company sell computers after upgradation the company will have profit of $60,000.

2.

the net operating income of the Kabanuck corporation is calculated as under:

$              (92,000)

the company has an operating loss of $92,000.

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