Question
A company with excess capacity must decide between scrapping or reworking units that do not pass...
A company with excess capacity must decide between scrapping or
reworking units that do not pass inspection. The company has 13,000
defective units that cost $5.20 per unit to manufacture. The units
can be a) sold as is for $2.80 each, or b) reworked for $5.00 each
and then sold for the full price of $8.00 each.
What is the incremental income from selling the units as scrap and
reworking and selling the units? Should the company sell the units
as scrap or rework them? (Enter costs and losses as
negative values.)
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Homework Answers
Answer #1
Answer:
| Sale as Scrap | Rework | |
| Sales of scrap units | $ 36,400.00 | $ - |
| Opportunity cost of not making new units | $ 104,000.00 | |
| Cost to rework units | $ 65,000.00 | |
| Incremental income (loss) | $ (67,600.00) | $(65,000.00) |
| The company should: | rework |
Calculation:
In case of any doubt, please feel free to comment.
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