Problem 23-4A Sell or process LO A1 Harold Manufacturing produces denim clothing

Question

Problem 23-4A Sell or process LO A1

Harold Manufacturing produces denim clothing. This year, it produced 5,200 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 secondhand clothing shop for $7.00 each.

Jackets can be disassembled at a cost of $32,400 and sold to a recycler for $12.00 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 5,200 jackets into only 2,900 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,800, 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

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 36400 62400 130500 Incremental costs 0 32400 101800 Incremental income 36400 30000 28700 The company should Sale at second hand shop

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