A company must decide between scrapping or reworking units that do not pass insp

Question

A company must decide between scrapping or reworking units that do not pass inspection. The company has 22.000 defective units that cost $6 per unit to manufacture. The units can be sold as is for $2.50 each, or they can be reworked tor $4.50 each and then sold for the full price of $8.50 each. If the units are sold as is, the company will be able to build 22,000 replacement units at a cost of $6 each, and sell them at the full price of $8.50 each. What is the incremental income from selling the units as scrap and reworking and selling the units? Should the company sell the units as scrap or rework them? (Enter costs and losses as negative values.) Sale as Scrap Rework Incremental income (loss) The company should Type here to search

Explanation / Answer

Calculate incremental income (loss)

Sale as scrap Rework Incremental sales 55000 187000 Less: Incremental cost (99000) Incremental income (loss) 55000 88000 The company should Rework the unit and sell them.

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