Harold Manufacturing produces denim clothing. This year, it produced 5,160 denim

Question

Harold Manufacturing produces denim clothing. This year, it produced 5,160 denim jackets at a manufacturing cost of $41.00 each. These jackets were damaged in the warehouse during storage. Management investigated the matter and identified three alternatives for these jackets.

1. Jackets can be sold to a second-hand clothing shop for $7.00 each 2. Jackets can be disassembled at a cost of $31,500 and sold to a recycler for $11.00 each. 3. 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 5,160 jackets into only 2,960 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,100, but the jackets can then be sold for their regular price of $45.00 each Required: 1. Calculate the incremental income. Alternative 1 Sell to a second- hand shop Alternative 2 Disassemble and sell to a recycler Alternative 3 Rework and sell at regular prices Incremental revenue Incremental costs Incremental income

Explanation / Answer

Req. 1)

Alt 1 - Sell to a second hand shop Alt 2 - Disassemble and sell to a recycler Alt 3 - Rework and sell a regular price Incremental Revenue 5160 * $7 =$36120 5160 * 11 = 56760 45 * 2960 = 133200 Incremental Costs 0 31500 101100 Incremental Income $36120 $25260 $32100

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