RNO Company's market for Model 55 has changed considerably, and RNO has had to drop price per unit from $265 to $125. There are some units in work in process inventory which have costs of $150 per unit associated with them. RNO could sell these units in their present state for $100 each. It will cost RNO $10 per unit to complete these units so that they can be sold for $125 each.
1. New employee looks at analysis and exclaims, “We will lose money with either of these alternatives! Let us just throw these units in trash!” Assume the alternative to trashing is selecting more profitable of two alternatives (that new employee looked at and didn’t like). What effect will the trashing option (that the new employee wants) have on net income?
A) Net income will increase by $35 per unit for each unit discarded.
B) Net income will decrease by $115 per unit for each unit discarded.
C) It will have no effect on net income.
D) Net income will decrease by $265 per unit for each unit discarded.
2. When incremental revenues and expenses are analyzed, company is better off by
A) $10 per unit if they sell units in their present state.
B) $25 per unit if they sell the units in their present state.
C) $15 per unit if they complete units.
D) $125 per unit if they complete units.