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 19,000 defective units that cost $5.50 per unit to manufacture. The units can be sold as is for $2.50 each, or they can be reworked for $4.50 each and then sold for the full price of 58.00 each. If the units are sold as is, the company will be able to build 19,000 replacement units at a cost of $5.50 each, and sell them at the full price of $8.00 each. What is the incremental income from selling the units as scrap and reworking and selling the units? Should the company sell the units as scrap or rework them? (Enter costs and losses as negative values.) Sale as ScrapRework Incremental income (loss) 0 S The company should:

Explanation / Answer

Sale as Scrap Rework Sales of scrap units $47,500 Sales of reworked units $152,000 Cost to rework units ($85,500) Opportunity cost of not making new units -47,500 Incremental income (loss) $47,500 19000 The company should: sell as is

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