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 10,000 defective units that cost $5.50 per unit to manufacture. The units can be sold as is for $3.30 each, or they can be reworked for $4.60 each and then sold for the full price of $8.80 each. If the units are sold as is, the company will be able to build 10,000 replacement units at a cost of $5.50 each, and sell them at the full price of $8.80 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 Scrap Rework Incremental income (loss) The company should

Explanation / Answer

Sale as Rework Scrap Sales of Scrap units 33000 Sales of reworked units 88000 cost ot rework units -46,000 opportunity cost of not making new units -33,000 incremental income(loss) 33000 9000 the company should sell as is product product TLX MTV Contribution margin per unit 8.75 3 units produced per hour 2 5 contributioon margin per hour 17.5 15 Maximum number of units to be sold 4,080 2,190 total production per hour 2 5 hours required to produce maximum units 2040 438 2478 for mots profitable sales mix hours dedicated to the production of each product 2,040 360 2,400 units produced for most profitable sales mix 4,080 1800 contribution margin per unit 8.75 3 total contribution margin 35700 5400 41100

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