Zanatech's Market for Its Remote Control Has Changed Significantly, and Zanatech

question 28

Multiple Choice

Zanatech's market for its remote control has changed significantly, and Zanatech 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.Zanatech can sell these units in their current state for $22 each.It will cost Zanatech $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!" What effect will this option have on net income?

• A)Profit will decrease by $45 per unit for each unit discarded.
• B)Profit will decrease by $30 per unit for each unit discarded.
• C)Profit will increase by $11 per unit since the completion costs will not have to be incurred.
• D)Profit will decrease by $5 per unit for each unit discarded.

---

Definitions:

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period of time, resulting in a net profit or loss.

Ending Inventory

The value of goods that a company has in stock at the end of its fiscal year, calculated as the beginning inventory plus purchases minus the cost of goods sold.

Accounts Payable

A liability to a creditor, carried on an open account, usually for purchases of goods and services.

LIFO Retail Inventory Method

An accounting technique that values inventory on the assumption that the last items placed in inventory are sold first, specifically applied to retail settings.