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Answer the following questions. 1. A company has an inventory of 1,200 assorted parts for a line of missiles that has been discontinued. The inventory cost is $71,000. The parts can be either​ (a) remachined at total additional costs of $24,000 and then sold for $32,000 or​ (b) sold as scrap for $5,000. Which action is more​ profitable? Show your calculations. 2. A​ truck, costing $104,000 and​ uninsured, is wrecked its first day in use. It can be either​ (a) disposed of for $15,500 cash and replaced with a similar truck costing $105,500 or​ (b) rebuilt for $85,500​, and thus be​ brand-new as far as operating characteristics and looks are concerned. Which action is less​ costly? Show your calculations.

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jepessoa

Answer:

1) the $71,000 is considered a sunk cost because it cannot be recovered.

option A yields $32,000 - $24,000 = $8,000 (this is more profitable)

option B yields $5,000

2) the $104,000 is also considered a sunk cost because it cannot be recovered

option A results in $105,500 - $15,500 = $90,000 in costs

option B costs $85,500 (this option is less costly)

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