A company has the choice of either selling 4,000 defective units as scrap or reb

Question

A company has the choice of either selling 4,000 defective units as scrap or rebuilding them. They could sell the defective units at $2 per unit or they could rebuild them at additional costs of $.50 per unit for materials, $1 per unit for labor, and $.75 per unit for overhead, and then sell the rebuilt units for $4 per unit. Which should the company do?
a.sell the units for scrap b. rebuild the units c.either alternative would have the same overall result neither sell nor rebuild since d. both alternatives would result in a loss

please do not guess, explain your answer

Explanation / Answer

Sale as scrap 4,000 x 2 = $8,000 Sale after rebuild 4,000 x 4 = 16,000 Less: additional cost Material 4,000 x .50 2,000 Labor 4,000 x 1.00 4,000 Overhead 4,000 x 0.75 $3,000 Total cost = 9,000 Net saving = 7,000 So from the above calculations, it is found that if we sell these units as scrap, the receipt is $8,000. But if we sale after rebuilding, the saving is only $7,000. Therefore, it is advised to sale these units as scrap.

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.