Harold Manufacturing produces denim clothing. This year, it produced 5,240 denim

Question

Harold Manufacturing produces denim clothing. This year, it produced 5,240 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 $8.00 each.

2. Jackets can be disassembled at a cost of $32,100 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 5,240 jackets into only 3,020 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,500, but the jackets can then be sold for their regular price of $45.00 each.

Required:
1. Calculate the incremental income.

Alternative 1 Sell to a second-hand shop Alternative 2 Disassemble and sell to a recycler Alternative 3 Rework and sell at regular prices Incremental revenue Incremental costs Incremental income

Explanation / Answer

1. Calculate the incremental income.

30780

Alternative 1 Sell to a second-hand shop Alternative 2 Disassemble and sell to a recycler Alternative 3 Rework and sell at regular prices Incremental revenue 41920 62880 135900 Incremental costs 32100 101500 Incremental income 41920

30780

34400 The company should Sell to A second hand shop

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