Bold Face manufactures TVs. The company’s high-definition TVs are very popular, but it has an inventory of 500 large-screen, standard-definition TVs for which there is little demand. Bold Face is considering the following options for disposing of these TVs:

 

1.    Sell them to a discount mail-order company at a total price of $40,000. The mail-order firm would then sell these large-screen, standard-definition TVs at a unit price of $200.

 

2.    Convert them to high-definition TVs at a remanufacturing cost of $400 per unit. These con- verted TVs then could be sold to TV stores for $1,000 each.

 

The standard-definition TVs were manufactured at a cost of $300 per unit. The cost of manufactur- ing high-definition TVs of the same size, however, normally amounts to $410 per unit.

 

 

Instructions

a.       Perform an incremental analysis of the revenue, costs, and profit resulting from converting the standard-definition TVs to high definition as compared with selling them to the mail- order firm.

 

b.       Identify any sunk costs, out-of-pocket costs, and possible opportunity costs.

 

c.       Indicate which of these options you would select and explain your reasoning, assuming that Bold Face currently:

 

1.       Has substantial excess capacity.

 

2.       Is operating at full capacity manufacturing high-definition TVs.