Harold Manufacturing produces denim clothing. This year, it produced 5,220 denim

Question

Harold Manufacturing produces denim clothing. This year, it produced 5,220 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.

  

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 5,220 jackets into only 2,990 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,700, but the jackets can then be sold for their regular price of $45.00 each.

  

Harold Manufacturing produces denim clothing. This year, it produced 5,220 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.

Explanation / Answer

Option 1 If the jackets are sold to a second-hand clothing shop @ $ 7.00 each, the incremental income is $ 7 x 5,220

=$ 36,540.

Option 2:

Option 3:

Option 1 seems to be best.

$ Incremental revenues ( $12 x 5,220) 62,640 Incremental cost of disassemble 32,100 Incremental income 30,540

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