Answered: Sale as Scrap Rework Incremental income…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

A company with excess capacity must decide between scrapping or reworking units that do not pass inspection. The company has 16,000 defective units that cost $5.70 per unit to manufacture. The units can be a) sold as is for $3.20 each, or b) reworked for $4.70 each and then sold for the full price of $8.90 each.

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.)

Sale as Scrap
Rework
Incremental income (loss)
The company should:

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