Explanation:
There are two alternatives
1. Sold for $6,300
The inventory parts should be sold for $6,300 as the current inventory parts are not relevant as it is a sunk cost i.e $18,500
2. Repair and after that sale it
Now in this case, we have to determine the benefit generated i.e come from
= Sale value - repairing cost
= $19,700 - $9,100
= $10,600
As we can see that the alternative 2 generated higher benefit as compare to the alternative 1 so it would be more beneficial for the company
The benefit under each alternative for disposing of the obsolete parts is $6,200, $10,600.
a. The benefit assuming parts are sold without modification $6,200 which is the current sales value for unmodified parts.
b. Net benefit assuming parts are sold after modification
Net benefit if parts are sold after modification =$19,700-$9,100
Net benefit if parts are sold after modification =$10,600
Inconclusion the benefit under each alternative for disposing of the obsolete parts is $6,200, $10,600.
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