Exhibit 7-1

Talmont Products has dropped the price per unit of its smart phone product from $1,060 to $500. There are some units in work-in-process inventory that have costs of $600 per unit associated with them. Talmont could sell these units in their current state for $400. It will cost Talmont $40 to complete these units so that they can be sold for $500 each.

19. Refer to Exhibit 7-1. Which of the following is not a relevant revenue or cost in this problem?

The old price of $1,060

The partially complete price of $400

The current price of $500

The cost to complete a unit of $40

None of the answer choices is correct.

20. Refer to Exhibit 7-1. When the incremental revenues and costs are analyzed, the company is better off by:

$500 per unit if they complete the units.

$40 per unit if they sell the units in their current state.

$200 per unit if they sell the units in their current state.

$60 per unit if they complete the units.

None of the answer choices is correct.

21. Refer to Exhibit 7-1. Talmont is considering the option of throwing away the remaining smart phone units that are in work-in-process inventory. What effect would this decision have on net income?

Net income would decrease by $1,060 for each unit discarded.

Net income would decrease by $600 for each unit discarded.

Net income will increase by $200 for each unit discarded.

This decision would have no effect on net income.

None of the answer choices is correct.

22. Refer to Exhibit 7-1. Which of the following amounts is a sunk cost in this problem? a. $1,060 per unit

$40 per unit

$600 per unit

$400 per unit

None of the answer choices is correct.