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Q. telephone co point no 7.
Push Co would also need a computerised control system called ‘Swipe 2’. The current market price of Swipe 2 is $10,800, although T Co has an older version of the system, ‘Swipe 1’, in inventory, which could be modified at a cost of $4,600. T Co paid $5,400 for Swipe 1 when it ordered it in error two months ago and has no other use for it. The current market price of Swipe 1 is $5,450, although if T Co tried to sell the one they have, it would
be deemed to be ‘used’ and therefore only worth $3,000.i am having trouble in this question called telephone co. why are we adding conversion cost and scrap?? dont we compare scrap with value of other use, instead here scrap has been added with diversion cost pls pls help
They have two choices. Either buy Swipe 2 in which case they will spend 10,800, or alternatively use Swipe 1.
If they use Swipe 1 they will have an opportunity cost of the lost sale processed of 3,000 and will also have to spend 4,600 converting it. So a relevant cost of $7,600.
7,600 is lower than 10,800 and so they will use Swipe 1 and the relevant cost is 7,600.
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