Question

Hanno Corp manufactures holiday wrapping paper. The print design had a typo and instead of saying "Merry Xmas" the wrap says "Merry YMas" and Hanno ends up wth 2,000 rolls of defective wrapping paper at a typical cost of $2.00 per roll. The rolls can be sold as is for $3,000 or re-run to correct the Y to an X at a cost of $2,800 and sold for the normal selling price of $4,000. The incremental advantage/disadvantge to the re-run is:

Answer 1

Incremental Advantage / Disadvantage of Re-run = Profit/Loss of Re-run - Profit/Loss of Original Run

Profit / Loss of Re-run = Revenue - Cost of re-run

= 4,000 - 2,800

= 1,200

Hence, Profit of $1,200 on re-run.

Profit / Loss of Original Run = Revenue - Cost

= 3,000 - (2,000*2)

= 3,000 - 4,000

= -1,000

Hence, Loss of $1,000 originally.

Incremental Advantage / Disadvantage of Re-run = 1,200 - (-1,000)

= $2,200

Hence, the incremental advantage of re-run is $2,200