Question

Ahngram Corp. has 1,000 defective units of a product that cost $3.50 per unit in direct costs and $7.00 per unit in indirect cost when produced last year. The units can be sold as scrap for $4.50 per unit or reworked at an additional cost of $3.00 and sold at full price of $13.50. The incremental net income (loss) from the choice of reworking the units would be:

Multiple Choice

$4,500 higher if the units are reworked.

$13,500 higher if the units are reworked.

$3,000 lower if the units are reworked.

$6,000 higher if the units are reworked.

$3,000 higher if the units are reworked.

Answer 1

Answer
The correct option is D : $6,000 higher if the units are reworked.
Explanation
Sales revenue, if reworked	$     13,500	1000*13.50
Less: Sales revenue, if sold as is	$       4,500	1000*4.5
Incremental revenue	$       9,000
Less: Additional cost	$       3,000	1000*2
Incremental net income (loss)	$       6,000
Option D : $6,000 is correct
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