Chang Industries has 2,000 defective units of product that have already cost $14

Question

Chang Industries has 2,000 defective units of product that have already cost $14 each to produce. A salvage company will purchase the defective units as they are for $5 each. Chang's production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. Chang should:

Throw the units away.

Sell the units to the salvage company for $5 per unit.

Sell the units as they are because repairing them will cause their total cost to exceed their selling price.

Sell 1,000 units to the salvage company and repair the remainder.

Correct the defects and sell the units at the regular price.

Explanation / Answer

Correct the defect and sell the units at the regular prices.

As the cost of defective unit of $14 and if additional $6 will bespent the defect will be corrected in this case the total cost is $20 and it could be sold for $21 so there will be $1 profit on each unit. So $2000 profit will be there.So whole of the cost will be recovered.

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