Harold Manufacturing produces denim clothing. This year, it produced 5,150 denim
ID: 2699238 • Letter: H
Question
Harold Manufacturing produces denim clothing. This year, it produced 5,150 denim jackets at a manufacturing cost of $45.00 each. These jackets were damaged in the warehouse during storage. Management investigated the matter and identified three alternatives for these jackets.
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 5,150 jackets into only 3,060 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,600, but the jackets can then be sold for their regular price of $45.00 each.
1. Jackets can be sold to a second-hand clothing shop for $7.00 each. 2. Jackets can be disassembled at a cost of $31,500 and sold to a recycler for $11.00 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 5,150 jackets into only 3,060 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,600, but the jackets can then be sold for their regular price of $45.00 each.
Explanation / Answer
(1) incremental income
Alternative 1: 5150*7=$36050
Alternative 2:(5150*11)-31500=$25150
Alternative 3:(3060*45)-101600=$36100
(2)According to the above calculations Harold should choose Alternative 1, beacuse it ll give better income than all other alternatives with out doing any extra work.
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