Harold Manufacturing produces denim clothing. This year, it produced 5,240 denim

Question

Harold Manufacturing produces denim clothing. This year, it produced 5,240 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. 1. Jackets can be sold to a secondhand clothing shop for $8.00 each. 2. Jackets can be disassembled at a cost of $32,100 and sold to a recycler for $11.00 each. 3. 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 5,240 jackets into only 3,100 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $102,900, but the jackets can then be sold for their regular price of $45.00 each. Required 1. Calculate the incremental income. Alternative 2 Sell to a second- Disassemble and Rework and sell at Alternative 1 Alternative 3 hand shop sell to a recyclerregular prices Incremental revenue Incremental costs Incremental income

Explanation / Answer

Calculate 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 5240*8 = 41920 5240*11 = 57640 3100*45 = 139500 Less: Incremental cost 0 32100 102900 Incremental income 41920 25540 36600 Alternative 1 Sell to second hand clothing shop is best alternative

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