Question

Harold Manufacturing produces denim clothing. This year, it produced 5,180 denim jackets at a manufacturing cost of $42.00 each. These jackets were damaged in the warehouse during storage. Management investigated the matter and identified three alternatives for these jackets.

1. Jackets can be sold to a secondhand clothing shop for $7.00 each.
2. Jackets can be disassembled at a cost of $31,100 and sold to a recycler for $12.00 each.
3. Jackets can be reworked and turned into good jackets. However, with the damage, management estimates it will be able to assemble the good parts of the 5,180 jackets into only 3,000 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,500, but the jackets can then be sold for their regular price of $45.00 each.

Required:
1. Calculate the incremental income.

Answer 1

Answer is attached below

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On the basis of Incremental income, the company should choose alternative 1 having maximum Incremental Income.