Sheffield Corp. has old inventory on hand that cost $21000. Its scrap value is $30000. The inventory could be sold for $70000 if manufactured further at an additional cost of $21000. What should Sheffield do?

Sell the inventory for $30000 scrap value

Explanation:

In the first place, if the old inventory is disposed of at $30,000 and cash inflow of $30,000 would be received

However, if manufactured by further  by incurring an additional cost of $21,000,the incremental income is computed thus:

incremental income=sales value-scrap value-additional cost

Remember scrap value is a lost benefit if the inventory is processed further and not sold in its current state.

incremental income=$70,000-$30,000-$21000

incremental income=$19,000(less than cash flow when disposed of at scrap value, hence, the inventory should be sold at $30,000)

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