Ahngram Corp. has 1,000 defective units of a product that cost $3.90 per unit in direct costs and $7.40 per unit in indirect cost when produced last year. The units can be sold as scrap for $4.90 per unit or reworked at an additional cost of $3.40 and sold at full price of $14.70. The incremental net income (loss) from the choice of reworking the units would be:
Multiple Choice
$3,400.
$11,300.
$0.
$4,900.
($3,400).
If there is reworking:
Last year’s costs should not be considered, since the units are recognized as defective.
Salvage value should not be considered, since the units are not sold at that value.
Incremental net income = (Full price – Reworking cost) × Units
= (14.70 – 3.40) × 1,000
= 11.30 × 1,000
= $11,300
Answer: 2nd option
Ahngram Corp. has 1,000 defective units of a product that cost $3.90 per unit in direct...
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