Madison Ironworks made 400 defective units last month. Fortunately, the units were identified as defective before they were sold to customers. They are currently included in Madison’s ending inventory balance at $100 each. At the end of the quarter, the company will have to write off their $40,000 cost, since the units have no value in their present condition.The production manager has determined that the units could be reworked for $20 each and then sold for $35. He has also received a bid from a liquidation company to purchase the defective units for $18 each. What alternatives are available to Madison? What information is irrelevant to the decision? Which alternative would generate the best financial result?
Madison Ironworks made 400 defective units last month. Fortunately, the units were identified as defective before they were sold to customers. They are currently included in Madison’s ending inventory balance at $100 each. At the end of the quarter, the company will have to write off their $40,000 cost, since the units have no value in their present condition.The production manager has determined that the units could be reworked for $20 each and then sold for $35. He has also received a bid from a liquidation company to purchase the defective units for $18 each.
What alternatives are available to Madison?
What information is irrelevant to the decision?
Which alternative would generate the best financial result?
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