Khiem, Inc. manufactures baseball gloves that normally sell for $55 each. Khiem
ID: 2435713 • Letter: K
Question
Khiem, Inc. manufactures baseball gloves that normally sell for $55 each. Khiem currently has 400 defective gloves in inventory that have $35 of materials, labor, and overhead assigned to each glove. The defective gloves can either be completely repaired at a cost of $25 per glove or sold as is at a reduced price of $18 per glove. Khiem would be better off by:$2,000 to sell the gloves at the reduced price.
$2,800 to sell the gloves at the reduced price.
$4,800 to repair the gloves and sell them at the normal price.
$5,200 to sell the gloves at the reduced price.
please show work
Explanation / Answer
Incremental cost of repairing and selling at normal price 400*18 = $7,200 (Opportunity cost of selling at reduced price) 400*25 = $10,000 (Cost of repairing) Incremental benefit of repairing and selling at normal price 400*55 = $22,000 (Revenue from selling repaired gloves) Net Incremental Benefit = $22,000 - $17,200 = $4,800 ANS: $4,800 to repair the gloves and sell them at normal price
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