Gold Company's manufacturing process causes a relatively large number of defective parts to be pro- duced. The defective parts can be (a) sold for scrap, (b) melted to recover the recycled metal for reuse, or (c) reworked to be good units. Reworking defective parts reduces the output of other good units because no excess capacity exists. Each reworked unit means that one new unit cannot be produced. The following information reflects 500 defective parts currently available. Should the company melt the parts, sell them as scrap, or rework them? Proceeds of selling as scrap ... $2,500 Additional cost of melting down defective parts 400 Cost of purchases avoided by using recycled metal from defects. . 4,800 Cost to rework 500 defective parts Direct materials Direct labor... 1,500 Incremental overhead 1,750 Cost to produce 500 new parts Direct materials 6,000 Direct labor..... 5,000 Incremental overhead 3,200 Selling price per good unit 40

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