Wave-Zone Company has 10,000 units of its sole product that it produced last yea

Question

Wave-Zone Company has 10,000 units of its sole product that it produced last year at a cost of $50 each. This year's model is superior to last year's and the 10,000 units cannot be sold for their regular selling price of $75 each. Wave-Zone has two alternatives for these items: (1) they can be sold to a wholesaler for $5 each, or (2) they can be reworked at a total cost of $190,000 and then sold for $22.50 each. The company has enough idle capacity to rework these items without affecting any new production. Which choice would increase the company's profits the most?

A. Scrapping, because profit will increase by $15,000 more than reworking.
B. Reworking because profit will increase by $50,000 more than scrapping.
C. Reworking, because profit will increase by $35,000 more than scrapping.
D. Scrapping, because profit will increase by $50,000 more than reworking.
E. Reworking, because profit will increase by $15,000 more than scrapping.

Explanation / Answer

Assuming scrapping means selling to a wholesaler they should be scrapped. Get $5 each for scrapping. Only get 22.50 - (190,000/10,000)= 3.50 for reworking. So you get 1.50 *10,000= 15,000 more from scrapping. A)

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.