Gordon Corporation inadvertently produced 10,000 defective digital watches. The

Question

Gordon Corporation inadvertently produced 10,000 defective digital watches. The watches cost $8 each to produce. A salvage company will purchase the defective units as they are for $3 each. Gordon's production manager reports that the defects can be corrected for $5 per unit, enabling them to be sold at their regular market price of $12.50. Gordon should:

Sell 5,000 watches to the salvage company and repair the remainder.

Sell the watches as they are because repairing them will cause their total cost to exceed their selling price.

Sell the watches for $3 per unit.

Correct the defects and sell the watches at the regular price.

Throw the watches away.

Explanation / Answer

Statement showing computations Particulars Sell as it is sell after correction' Sale Value                        3.00                               12.50 Costs for correction                               (5.00) Net Benefit                        3.00                                 7.50 Correct the defects and sell the watches at the regular price. since net benefit is greater

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