Question

Glove, Inc. manufactures baseball gloves that normally sell for $55 each. The firm currently has 400 defective gloves each of which cost the company $35 in materials, labor, and overhead. The defective gloves can be sold as is at a reduced price of $18 per glove. Alternatively, the gloves can be completely repaired at a cost of $25 per glove and sold at the regular price of $55. What would be the incremental effect on the company overall profit of repairing and selling the glove the regular price rather than selling them as defective gloves?

a. 7000 increase
b. 5600 increase
c. 2200 increase
d. 3400 decrease
e. none of the above

Answer 1

Glove, Inc.

The incremental effect on the company's overall profit of repairing and selling the glove at the regular price rather than selling them as defective gloves is:

e. none of the above

Step-by-step explanation:

a) Data and Calculations:

Normal price of gloves = $55 each

Defective gloves = 400

Cost price of defective gloves = $35

Total cost of defective gloves = $14,000

Revenue from gloves sold as defective = $7,200 ($18 * 400)

Loss from sale of defective = $6,800 ($14,000 - 7,200)

Cost of repairing defective gloves = $25 each

Total cost plus repair = $60 ($35 + $25) * 400) = $24,000

Revenue from repaired gloves = $22,000 ($55 * 400)

Loss from sale of repaired gloves = $2,000 ($24,000 - $22,000)

Incremental effect on profit of repairing and selling the glove at the regular price rather than selling them as defective gloves is $4,800 decrease of the loss from $6,800 to $2,000.