Harold Manufacturing produces denim clothing. This year, it produced 5,240 denim

Question

Harold Manufacturing produces denim clothing. This year, it produced 5,240 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. 1. Jackets can be sold to a second-hand clothing shop for $8.00 each. 2. Jackets can be disassembled at a cost of $32,100 and sold to a recycler for $12.00 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 5,240 jackets into only 2,900 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,600, but the jackets can then be sold for their regular price of $44.00 each. Required: 1. Calculate the incremental income.

Explanation / Answer

ALT 1 ALT 2 ALT 3 direct sale disassemble and sale rework units sold 5240 2900 5240 SP per unit 8 12 44 Sales 41920 34800 230560 Less:cost 0 32100 101600 Income 41920 2700 128960 Incremental income 87040 (128960-41920)

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