Armstrong Corporation manufactures bicycle parts. The company currently has a $2

Question

Armstrong Corporation manufactures bicycle parts. The company currently has a $20,100 inventory of parts that have become obsolete due to changes in design specifications. The parts could be sold for $7,600, or modified for $10,600 and sold for $21,500.

1. Calculate the benefit under each alternative for disposing of the obsolete parts.

Benefit if parts are sold without modification:

Net benefit if parts are sold after being modified:

1. Calculate the benefit under each alternative for disposing of the obsolete parts.

Explanation / Answer

1 Benefit if parts are sold without modification: benefit received from on dispose off Obsolete part =$7600 2 Benefit if parts are sold after being Modified sale value after being Modified 21500 less: Cost of Modification 10600 Net benefit from modification and sale 10900 best option is to Modify and Sold the modified inventory. Because it generates incremental revenue of $3300   ($10900-$7600)

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