A company has the choice of either selling 750 defective units as scrap or rebuilding them. They...
Question:
A company has the choice of either selling 750 defective units as scrap or rebuilding them. They have already spent $14 per unit making these items. The company could sell the defective units as they are for $8.00 per unit. Alternatively, it could rebuild them with incremental costs of $3.00 per unit for materials, $3.00 per unit for labor, and $1.00 per unit for overhead, and then sell the rebuilt units for $15.00 each. What should the company do?
A.) It does not matter because both alternatives have the same result.
B.) Neither sell nor rebuild because both alternatives produce a loss. Instead, the company should store the units permanently.
C.) Throw the units away.
D.) Rebuild the units.
E.) Sell the units as scrap.
Incremental Income
Incremental Income is the excess of Incremental Revenue over Incremental Costs. This income arises when comparing alternatives such in deciding whether to sell defective products as is or rebuilding them.
Answer and Explanation: 1
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View this answerCorrect Answer: A.) It does not matter because both alternatives have the same result.
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