Lemon Corporation has some material that originally cost $300,000. The material

ID: 2537444 • Letter: L

Question

Lemon Corporation has some material that originally cost $300,000. The material has a scrap value of $25,000 as is, but if reworked at a cost of $30,000, it could be sold for $45,000. What would be the incremental effect on the company's overall profit of reworking and selling the material rather than selling it as is as scrap?

increase of $15,000

decrease of $285,000

decrease of $10,000

decrease of $310,000

increase of $15,000

decrease of $285,000

decrease of $10,000

decrease of $310,000

Explanation / Answer

Value of scrap (A)

$25,000

Rework and sold:

Sale value after rework

$45,000

Less: Cost of rework

$30,000

Profit on rework and sold (B)

$15,000

Net impact if rework and sold (Profit on rework and sold - Value of scrap) =(B-A)

($10,000)

Net decrease in profit if rework and sold = $10,000

Option (C.) Decrease $10,000 is correct