Assuming that the MR Corporation has an inventory of 200 defective motors costing $450,000 to produce and $150,000 to repair, the repaired units can be sold for $275,000
The company receives an offer to purchase these motors for $100,000 before repairing them. The company's decision should be to sell the motors at the offered price.
Indicate whether the statement is true or false.
FALSE
The $450,000 production costs are sunk costs and therefore irrelevant to the decision. Net proceed from the sale of repaired units is $125,000 (Proceeds from sale of reworked units $275,000 - relevant costs for repair $150,000) compared to the offer to purchase for $100,000. Since the offer price is less than the net proceed from the sale of repaired units, the decision should be not to sell the motors at the offered price.
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