The Tinka Toy Company has a large inventory of a specific type of toy which is deemed to be obsolete and, thus, unsaleable at its current prices. The recorded value of this inventory is $$50,000.$ Tinka may either modify the toys at an additional cost of $$35,000$ or sell them to a competitor in their current state for $$5,000.$ The costs of modification include the cost of purchasing new equipment of $$10,000,$ which could be sold after the toy modification for $$5,000.$ If Tinka modifies the toys, the total expected revenue would be $$40,000.$ Should Tinka sell the toys in their present state or modify them? Identify any incremental costs, incremental revenues, and sunk costs, which exist.

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To determine whether Tinka Toy Company should sell the toys in their present state or modify them we ... View the full answer