Question

Exercise 10-6 Scrap or rework LO A1 A company must decide betwee that cost $5.40 per unit to manufacture. The units can be sold for the full price of $8.70 each. If the units are sold as is, the company will be able to build 16,000 replacement units at a cost of n scrapping or reworking units that do not pass inspection. The company has 16,000 defective units sold as is for $3.30 each, or they can be reworked for $4.60 each and then $5.40 each, and sell them at the full price of $8.70 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.) ed units Cost to rework units Opportunity cost of not making new units The 1 of 1l Next

Answer 1

Particulars	Sale as scrap	Rework
Sales	$52,800	$139,200
Cost to rework (16,000*$4.6)	$0	($73,600)
Opportunity cost of not making new units (8.7-5.4)*16,000	$0	($52,800)
profit from new units (8.7-5.4)*16,000	$52,800	$0
Incremental income / (loss)	$105,600	$12,800
The company should sale as scrap hence the incremental profit is higher