Question

Check my work Exercise 23-4 Scrap or rework LO P2 points A company with excess capacity must decide between scrapping or reworking units that do not pass inspection. The company has 10,000 defective units that cost $5.40 per unit to manufacture. The units can be a) sold as is for $2.90 each, or b) reworked for $4.80 each and then sold for the full price of $8.30 each. Skipped 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.) eBook Hint Sale as Scrap Rework Print References Incremental income (loss) $ 0 0 The company should:

Answer 1

CALCULATION OF INCREAMENTAL REVENUE
	Sale as Scrap	Rework
Number of units	10,000 Units	10,000 Units
Selling Price	$                           2.90	$                          8.30
Selling Value	$                      29,000	$                      83,000
Less:
Addittional Exoenditure for Rework	$                               -	$                      48,000
		(10,000 X $ 4.80)
Net Income	$                      29,000	$                      35,000
Increamental Income		$                        6,000
The company should	Go for rework because it increases the income by $ 6,000