Harold Manufacturing produces denim clothing. This year, it produced 5,280 denim jackets at a manufacturing cost of $41.00 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 to a secondhand clothing shop for $7.00 each. 2. Jackets can be disassembled at a cost of $32,800 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 5,280 jackets into only 3,050 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,400, but the jackets can then be sold for their regular price of $41.00 each. Required: 1. Calculate the incremental income.

Harold Manufacturing produces denim clothing. This year, it produced 5,280 denim jackets at a manufacturing cost of $41.00 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 to a secondhand clothing shop for $7.00 each. 2. Jackets can be disassembled at a cost of $32,800 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 5,280 jackets into only 3,050 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $101,400, but the jackets can then be sold for their regular price of $41.00 each. Required: 1. Calculate the incremental income.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

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Question

Harold Manufacturing produces denim clothing. This year, it produced 5,280 denim jackets at a manufacturing cost
of $41.00 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 to a secondhand clothing shop for $7.00 each.
2. Jackets can be disassembled at a cost of $32,800 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 5,280 jackets into only 3,050 jackets. The remaining pieces of fabric
will be discarded. The cost of reworking the jackets will be $101,400, but the jackets can then be sold for their
regular price of $41.00 each.
Required:
1. Calculate the incremental income.
Incremental revenue
Incremental costs
Incremental income
Alternative 1
Sell to a second-
hand shop
Alternative 2
Disassemble and
sell to a recycler
Alternative 3
Rework and sell at
regular prices

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