Criswell Company has 15,000 units in inventory that had a production cost of $3 per unit.These units cannot be sold through normal channels due to a significant technology change.These units could be reworked at a total cost of $23,000 and sold for $28,000.Another alternative is to sell the units to a junk dealer for $8,500.The relevant cost for Criswell to consider in making its decision is
A)$45,000 of original product costs.
B)$23,000 for reworking the units.
C)$68,000 for reworking the units.
D)$28,000 for selling the units to the junk dealer.

Question

Quizplus · Accepted Answer

The relevant cost in this decision is the cost of reworking the units ($23,000) and the revenue that can be earned by selling the reworked units ($28,000). The original product cost and the offer from the junk dealer are not relevant since they do not impact the decision about what to do with the current inventory. Selling the units to the junk dealer would result in a loss of $6,500 ($15,500 net loss from the production cost minus the revenue earned from the junk dealer offer), while reworking and selling the units would result in a profit of $5,000 ($28,000 revenue minus $23,000 cost to rework). Therefore, the best choice is to rework the units and sell them.

Criswell Company Has 15,000 Units in Inventory That Had a Production