Question

Harold Manufacturing produces denim clothing. This year, it produced 5,300 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.

Jackets can be sold to a secondhand clothing shop for $8.00 each.

Jackets can be disassembled at a cost of $31,000 and sold to a recycler for $12.00 each.

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 5,300 jackets into only 2,960 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,200, but the jackets can then be sold for their regular price of $45.00 each.

Required:
1. Calculate the incremental income.

	Alternative 1 Sell to a second-hand shop	Alternative 2 Disassemble and sell to a recycler	Alternative 3 Rework and sell at regular prices
Incremental revenue
Incremental costs
Incremental income	$0	$0	$0

Answer 1