Problem 10-4A Sell or process LO A1 Harold Manufacturing produces denim clothing

Question

Problem 10-4A Sell or process LO A1 Harold Manufacturing produces denim clothing. This year, it produced 5,290 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 $7.00 each. 2. Jackets can be disassembled at a cost of $31,900 and sold to a recycler for $12.00 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 5,290 jackets into only 2,940 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,300, but the jackets can then be sold for their regular price of $44.00 each Required: 1. Calculate the incremental income. Alternative 2 Sell to a second- Disassemble and Rework and sell at Alternative 1 Alternative 3 hand shop sell to a recycler regular prices Incremental revenue Incremental costs Incremental income 0$ 0 Alternative 1

Explanation / Answer

Alternative 1 Sell as is Alternative 2 Disassemble and sell to a recycler Alternative 3 Rework and turn into good jackets Incremental revenue 37030 63480 129360 Incremental costs 0 31,900 1,01,300 Incremental income 37030 31,580 28,060 The company should choose: Alternative 1

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