I found the first answer, need help finding the second! A company must decide be
ID: 2372056 • Letter: I
Question
I found the first answer, need help finding the second!
A company must decide between scrapping or reworking units that do not pass inspection. The company has 12,000 defective units that cost $5.80 per unit to manufacture. The units can be sold as is for $2.50 each, or they can be reworked for $3.50 each and then sold for the full price of $9.20 each. If the units are sold as is, the company will also be able to build 12,000 replacement units at a cost of $5.80 each, and sell them at the full price of $9.20 each.
What is the incremental income from selling the units as scrap? (Omit the "$" sign in your response.)
What is the incremental income from reworking and selling the units? (Omit the "$" sign in your response.)
What must the company decide?
(1)What is the incremental income from selling the units as scrap? (Omit the "$" sign in your response.)
Explanation / Answer
1) Sell as scrap
Add revenues: 12,000 units x 2.50 scrap value + 12,000 new units x 9.20 sales price
$30,000 + 110,400 = 140,400
Less cost: 12,000 new units x $5.80 cost
40,800
Incremental income from scraping units and making new ones:
$140,400 - 40,800 = $70,800
2) Process units further
Revenue: 12,000 units x $9.20 sales price = 110,400
Less cost: 12,000 units x $3.50 further processing cost = 42,000
Incremental income from processing further:
$110,400 - 42,000 = $68,400
3) The company should sell the units as scrap and make new units from scratch in their place.
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