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.

Required:
1. Calculate the incremental income.

Alternative 2 Sell to a second Disassemble and Rework and sell at sell to a recycler Alternative 1 Alternative 3 hand shop regular prices Incremental revenue Incremental costs Incremental income

Explanation / Answer

Alternative 1 is the best alternative since it yields the highest 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 36540 62640 134100 (5220 x $7) (5220 x $12) (2980 x $45) Incremental costs 0 32900 102000      Incremental income 36540 29740 32100

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