RNO Company\'s market for the Model 55 has changed significantly, and RNO has ha
ID: 2435578 • Letter: R
Question
RNO Company's market for the Model 55 has changed significantly, and RNO has had to drop the price per unit from $265 to $125. There are some units in the work in process inventory that have costs of $150 per unit associated with them. RNO could sell these units in their current state for $100 each. It will cost RNO $10 per unit to complete these units so that they can be sold for $125 each.Reference: Ref 7-1
A new employee looks at the analysis and exclaims, “We'll lose money with either of these alternatives! Let's just throw these units in the trash!” What effect will this option have on net income?
Answer
It will have no effect on net income.
Net income will decrease by $265 per unit for each unit discarded.
Net income will decrease by $150 per unit for each unit discarded.
Net income will increase by $35 per unit for each unit discarded.
Explanation / Answer
It will have no effect on net income
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