A company has the choice of either selling 750 defective units as scrap or rebui

Question

A company has the choice of either selling 750 defective units as scrap or rebuilding them. They have already spent $14 per unit making these items. The company could sell the defective units as they are for $8.00 per unit. Alternatively, the company could rebuild the units at an incremental cost of $1.00 per unit. If it rebuilds the units, they will not be able to produce 750 new units with a unit cost of $3.00 and a normal selling price of $15.00 each. What should the company do?

A. It does not matter because both alternatives have the same result.
B. Rebuild the units.
C. Throw the units away.
D. Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should store the units permanently.
E. Sell the units as scrap.

Explanation / Answer

A. It does not matter because both alternatives have the same result.

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