Harold Manufacturing produces denim clothing. This year, it produced 5,190 denim

Question

Harold Manufacturing produces denim clothing. This year, it produced 5,190 denim jackets at a manufacturing cost of $42.00 each. These jackets were damaged in the warehouse during storage. Management investigated the matter and identified three alternatives for these jackets. Jackets can be sold to a second-hand clothing shop for $8.00 each. Jackets can be disassembled at a cost of $31,100 and sold to a recycler for $11.00 each. Jackets can be reworked and turned into good jackets. However, with the damage, management estimates it will be able to assemble the good parts of the 5,190 jackets into only 2,970 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,300, but the jackets can then be sold for their regular price of $45.00 each. Calculate the incremental income.

Explanation / Answer

Alternative 1 Alternative 2 Alternative 3 sell to a disassemble and rework and sell second hand shop sell to a recycler at regular price Incremental revenue 41520 57090 133650 Incremental cost 0 31100 101300 Incremental income 41520 25990 32350 The company should choose alternative 1 as the maximum incremental income is there in alternative 1

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