Cornerstone, inc. has $125,000 of inventory that suffered minor smoke damage from a fire in the warehouse. the company can sell the goods "as is" for $45,000; alternatively, the goods can be cleaned and shipped to the firm's outlet center at a cost of $23,000. there the goods could be sold for $80,000. what alternative is more desirable and what is the relevant cost for that alternative?

Alternative of cleaning and shipping is better as loss value is less.

Relevant cost of this alternative is $23,000 incurred for cleaning and shipping.

Explanation:

Evaluating both the proposals

In case the goods are sold as it is then net cost/ loss = Carrying value of inventory - Sales Revenue

= $125,000 - $45,000 = $80,000

In case the goods are cleaned and shipped then

Total cost = $125,000 + $23,000 = $148,000

Revenue = $80,000

Net loss/ cost = $148,000 - $80,000 = $68,000

Thus Since the loss value is less i alternative 2 that is of cleaning and shipping, it shall be chosen.

The relevant cost of that alternative is $23,000 incurred in cleaning and shipping.