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 15,000 defective units that cost $5.30 per unit to manufacture. The units can be sold as is for $2.50 each, or they can be reworked for $3.50 each and then sold for the full price of $9.10 each. If the units are sold as is, the company will also be able to build 15,000 replacement units at a cost of $5.30 each, and sell them at the full price of $9.10 each. (1) What is the incremental income from selling the units as scrap? (2) What is the incremental income from reworking and selling the units?Incremental income $ (3) What must the company decide? The units should be reworked? or The units should not be reworked?

Explanation / Answer

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