Answer to Question #143880 in Finance for Mr. Dinesh Pal Singh

Question #143880
7. Tempo Electronics, Inc., has an inventory of 5,000 unique electronic chip originally purchased at $2.50 each; their market value is now $ 5 each. The production department has proposed to use these by putting each one together with $6 worth of labor and other materials to produce a wristwatch that would be sold for $10. Should that proposal be implemented? Explain from the viewpoints of economic profit and opportunity costs.
Expert's answer

Option one

sell 5000 chips at

cost to Tempo Electronics =

option two

sell 5000 units at

cost of manufacture (

As profit is greater when sold, so option one is more profitable and should be followed by the firm.

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