Question

Lawn Carpet produced 1,112 yards of its economy-grade carpet. In the coloring process, there was a pigment defect, and the resulting color appeared to be faded. The carpet normally sells for $15 per yard: $7 of variable cost per yard and $6 of fixed cost per yard have been assigned to the carpet.

The company realizes that it cannot sell the carpet for $15 per yard through its normal channels, unless the coloring process is repeated. The incremental cost of the process is $2 per yard. However, Practical Home Solutions is willing to buy the carpet in its current faded condition for $8 per yard.

Should Lawn repeat the coloring process or sell the carpet to Practical Home Solutions?

Lawn should select an option                                                          sell the carpet to Practical Home Solutionsrepeat the coloring process. Total incremental benefit is $enter total incremental benefit in dollars  .

Answer 1

Ans:

	1,112 Yard		1,112 Yard
	Repeat the coloring process		Sell as it is		Incremental Revenue
	Amount	Per Unit	Amount	Per Unit	Amount
Incremental Revenue	$16,680	$15	$8,896	$8	$7784
Less: Incremental Cost	($2224)	$2	-	$0	(2224)
Net Benefit	$14,456		$8896		$5560

Explanation:

1) Variable and Fixed cost are aleready incurred so they are sunk cost, so its not relevant data therefore'we have not taken this amount in computation.

2) As we , can see from, the above table net benefit is more,when it repeats the process.

3)

Lawn should select an option repeat the coloring process. Total incremental benefit is $ 5560 .