Wave-Zone Company has 10,000 units of its sole product that it produced last yea
ID: 2360519 • Letter: W
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?Explanation / Answer
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?
Reworking, because will profit increase by $35,000 more than scrapping.
Scrapping, because profit will increase by $15,000 more than reworking.-ANSWER
Scrapping, because profit will increase by $50,000 more than reworking.
Reworking, because profit will increase by $15,000 more than scrapping
. Reworking because profit will increase by $50,000 more than scrapping. Solution:
============
Alternative 1
Sold to wholesaler for $5 each Units X 10000 Price 5
= Net 50000
==========
Alternative 2
Rework Cost 190000
Units 10000
Price 22.5
Sales price 225000
Net= 35000
Scrapping, because profit will increase by $15,000 more than reworking.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.