An Employee of Morgan Corporation Has Found Some Partially Completed

question 157

Essay

An employee of Morgan Corporation has found some partially completed units of Model X in a dusty corner of the warehouse. A job ticket attached to the units indicates that a total of $750 in manufacturing costs have been used to bring the materials to this point in the manufacturing process. The units can be sold in their current condition for $275 to a scrap metal dealer. If Morgan spends $250 to complete the units, they could be sold for $600.
Required:
A. Morgan should finish the units because the incremental revenue of $325 ($600 - $275) is greater than the incremental cost of $250.
A. What should Morgan do? Why?
B. Identify the sunk cost, if any.
Answer
B. The $750 in manufacturing cost that has already been incurred is sunk and not relevant.

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Definitions:

World Trade

The exchange of goods and services across international borders or territories.

Tariffs

Taxes or duties to be paid on a particular class of imports or exports.

Quotas

Limits set on the quantity or value of goods that can be imported or exported over a specified period.

Countertrade

A form of international trade in which goods or services are exchanged for other goods or services, rather than for hard currency.