Question

Techzan's demand for its electronic devices has changed significantly, and the company has had to drop the selling price per unit from $45 to $38. There are some units in the work in process inventory that have costs of $30 per unit associated with them. Techzan can sell these units in their current state for $22 each. Or, it will cost Techzan $11 per unit to rework these units so that they can be sold for $38 each. A new employee looks at the analysis and exclaims, “We’ll lose money with either of these alternatives! Let’s just throw these units in the trash!” If the company decides to throw the units in the trash, what effect will this option have on net income?

Group of answer choices

Profit will decrease by $30 per unit for each unit discarded. The new employee should be fired.

Profit will decrease by $45 per unit for each unit discarded. The new employee should be fired.

Profit will decrease by $5 per unit for each unit discarded. The new employee should be fired.

Profit will increase by $11 per unit since the completion costs will not have to be incurred. The new employee should be promoted.

Answer 1

	Option 1:Discard the product
	Selling Price per unit	$              22.00
	Less:Costs in WIP	$              30.00
	Loss in discarding	$              -8.00
	Option 2:Process further and sell
	Selling Price per unit	$              38.00
	Less:Costs in WIP	$              30.00
	Less:Rework Costs	$              11.00
	Loss in discarding	$              -3.00
	So if the product is discarded then there is a loss of $5($8-$3)
	So Option C is answer - Profit will decrease by $5 per unit and employee should be fired