Question

MC Qu. 76 Ahngram Corp. has... Ahngram Corp. has 1,000 defective units of a product that cost $3.60 per unit in direct costs and $7.10 per unit in indirect cost when produced last year. The units can be sold as scrap for $4.60 per unit or reworked at an additional cost of $3.10 and sold at full price of $13.80. The incremental net income (loss) from the choice of reworking the units would be:

Answer 1

It is more profitable to continue processing.

Step-by-step explanation:

Giving the following information:

Ahngram Corp. has 1,000 defective units of a product that cost $3.60 per unit in direct costs and $7.10 per unit in indirect cost when produced last year. The units can be sold as scrap for $4.60 per unit or reworked at an additional cost of $3.10 and sold at the full price of $13.80.

We have to determine whether it is more convenient to sell as it is, or continue processing.

Sell now:

Effect on income= 1,000*4.6 - 1,000*(3.6 + 7.10)= -$6,100

Continue processing:

Effect on income= 1,000*13.8 - 1,000*(10.7 + 3.10)= 0

It is more profitable to continue processing.