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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 10,000 defective units that cost $5.70 per unit to manufacture. The units can be a) sold as is for $2.60 each, or b) reworked for $4.90 each and then sold for the full price of $8.30 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.)

Sale as Scrap Rework
Opportunity cost of not making new units
Sales of scrap units 26,000
Sales of reworked units 83,000
Incremental income (loss) $26,000 $34,000
The company should: sell as is
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