Exercise 23-7 Scrap or rework LO A1

Varto Company has 8,400 units of its sole product in inventory that it produced last year at a cost of $29 each. This years model is superior to last years, and the 8,400 units cannot be sold at last years regular selling price of $38 each. Varto has two alternatives for these items: (1) they can be sold to a wholesaler for $11 each, or (2) they can be reworked at a cost of $141,100 and then sold for $27 each. Prepare an analysis to determine whether Varto should sell the products as is or rework them and then sell them.

INCREMENTAL REVENUE AND COST OF ADDITIONAL PROCESSING Revenue if processed further Revenue if sold as is Incremental revenue Incremental net income(Loss) The company should