Fancy Furniture produced a batch of 2,000 coffee tables at a cost of $355,000. I

Question

Fancy Furniture produced a batch of 2,000 coffee tables at a cost of $355,000. It was discovered that the entire batch was finished improperly. Fancy can sell the tables as seconds for $305,000 or spend an additional $315,000 to refinish them and sell them for $605,000.

In deciding whether to rework the tables or sell them as is, management should:

Question 5 options:

a)

Compare the $305,000 proceeds from the sale of the tables as is, with the $355,000 cost of the tables.

b)

Compare the $605,000 possible revenue from refinished tables with the total cost of $355,000 plus $315,000 to refinish.

c)

Compare the $315,000 cost to refinish the tables with the incremental revenue of $300,000 if the tables are refinished.

d)

Eliminate any alternative that results in a loss on the sale of the product.

a)

Compare the $305,000 proceeds from the sale of the tables as is, with the $355,000 cost of the tables.

b)

Compare the $605,000 possible revenue from refinished tables with the total cost of $355,000 plus $315,000 to refinish.

c)

Compare the $315,000 cost to refinish the tables with the incremental revenue of $300,000 if the tables are refinished.

d)

Eliminate any alternative that results in a loss on the sale of the product.

Explanation / Answer

c) Compare the $315,000 cost to refinish the tables with the incremental revenue of $300,000 if the tables are refinished. your revenues would increase by $300,000 if you refinish the tables, the extra cost to refinish them would cause you to lose $15,000 more than if you didn't refinish them.

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