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27 April, 10:44

Hodge Inc. has some material that originally cost $74,600. The material has a scrap value of $57,400 as is, but if reworked at a cost of $1,500, it could be sold for $54,400. What would be the financial advantage (disadvantage) of reworking and selling the material rather than selling it as is as scrap?

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  1. 27 April, 10:45
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    Answer: If the material is reworked and sold, Hodge Inc. has a financial disadvantage of ( - 4500).

    Let's see why:

    1) If we sell the material at its disposal value: We have a cost of $ 74600 and the income from sale would be $ 57400 =

    57400 - 74600 = (-17200). We have a loss of $17200.

    2) If we rework the material we will have an original cost of $ 74600, an additional cost for reworking of $ 1500 and the income from its sale would be $ 54400 =

    54400 - (74600 + 1500) = (-21700) We have a loss of $ 21700.

    Then comparing the 2 situations =

    (-21700) - (-17200) = - 4500. There is a financial disadvantage of $4,500 if the material is reworked instead of selling it as scrap.
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