Reference: 09-02
Tolar Company has 400 obsolete desk calculators that are carried in inventory at a total cost of $26,800. If these calculators are upgraded at a total cost of $10,000, they can be sold for a total of $30,000. As an alternative, the calculators can be sold in their present condition for $11,200.
-Assume that Tolar decides to upgrade the calculators. At what selling price per unit would the company be as well off as if it just sold the calculators in their present condition?
A)$67.
B)$8.
C)$30.
D)$53.

Question

Quizplus · Accepted Answer

To be as well off selling the upgraded calculators as selling them in their current condition, Tolar Company needs to recover the cost of the calculators plus the upgrade cost. The total cost is $26,800 (initial cost) + $10,000 (upgrade cost) = $36,800. Selling them in their current condition would bring in $11,200. To find the break-even selling price per unit after upgrading, we calculate the difference between the total cost after upgrading and the revenue if sold without upgrading, then divide by the number of units. However, since the goal is to determine the selling price per unit that makes the company as well off as selling without upgrading, we consider the total costs and desired revenue. The desired revenue is the total costs of $36,800 to break even. Dividing this by the number of units (400) gives a selling price of $92 per unit to break even. This calculation seems to have misunderstood the question's requirement. The correct approach is to ensure the net benefit from upgrading equals the net benefit from selling as is. Selling as is nets $11,200. Upgrading costs $10,000, and they aim to sell for $30,000, making the net benefit from upgrading $30,000 - $26,800 (original cost) - $10,000 (upgrade cost) = -$6,800. To match the net from selling as is, they need to sell for enough to cover costs plus the $11,200. The correct calculation should find the price per unit that makes upgrading as financially beneficial as selling without upgrading, which involves comparing the net proceeds from each option directly.

Reference: 09-02 Tolar Company Has 400 Obsolete Desk Calculators That Are Carried