Question

Harold Manufacturing produces denim clothing. This year, it produced 5,220 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 as is to a secondhand clothing shop for $700 each 2. Jackets can be disassembled at a cost of $31,300 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 5,220 jackets into only 2.930 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $102,300, 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 secondhand shop Alternative 2 Alternative 3 Disassemble and Rework and sell at sell to a recycler e gular prices Incremental rol Incremental costs Incremental income

Answer 1

	Alternative 1 Sell as is	Alternative 2 Disassemble and sell to a recycler	Alternative 3 Rework and turn into good jackets
Incremental revenue	36540	57420	131850
Incremental costs	0	31300	102300
Incremental income	36540	26120	29550
The company should choose:	Alternative 1
Workings:
	Alternative 1 Sell as is	Alternative 2 Disassemble and sell to a recycler	Alternative 3 Rework and turn into good jackets
Incremental revenue	=5220*7	=5220*11	=2930*45