Cornerstone, Inc

question 10

Multiple Choice

Cornerstone, Inc. has $125,000 of inventory that suffered minor smoke damage from a fire in the warehouse. The company can sell the goods "as is" for $45,000; alternatively, the goods can be cleaned and shipped to the firm's outlet center at a cost of $23,000. There the goods could be sold for $80,000. What alternative is more desirable and what is the relevant cost for that alternative?

• A) Sell "as is," $125,000.
• B) Clean and ship to outlet center, $23,000.
• C) Clean and ship to outlet center, $103,000.
• D) Clean and ship to outlet center, $148,000.
• E) Neither alternative is desirable, as both produce a loss for the firm.

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Definitions:

Production Budget

An estimated financial plan for the production process, detailing costs and resources needed to meet production goals.

Sales Budget

An estimate of the expected sales revenue for a certain period of time, often used as a plan for business operations and resource allocation.

Capital Expenditures Budget

A budget that outlines projected spending on fixed assets over a period, including purchases of property, equipment, and other long-term investments.

Production Budget

A financial plan that estimates the costs associated with the production process, including materials, labor, and overhead, within a specific period.