Has an inventory of 500 obsolete remote entry keys that are carried in inventory at a manufacturing cost of $ 80 comma 500. Production supervisor Leo George must decide to do one of the following: times Process the inventory further at a cost of $ 19 comma 000, with the expectation of selling it for $ 34 comma 000 times Scrap the inventory for a sales price of $ 4 comma 000 What should George do? Present figures to support your decision.

Remote enter keys shall be further processed in order to decrease the amount of loss by $11,000.

Explanation:

As in the given case,

Number of units = 500

Carrying cost = $80,500

Cost per unit = 80,500/500 = $161

In case of scrap for the price of $4,000

Scrap price per unit = $4,000/500 = $8

Thus, loss per unit in case of scrap = $161 - $8 = $153

In case inventory is further processed

Total cost = $80,500 + $19,000 = $99,500

Cost per unit = $99,500/500 = $199

Revenue earned = $34,000

Revenue per unit = $34,000/500 = $68

Thus, loss per unit in case of further processing = $199 - $68 = $131

Therefore the inventory shall be processed in order to save the total loss of $153 - $131 = $22 per unit

Total loss saved = $22 500 = $11,000

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