Question

Signal mistakenly produced 1,000 defective cell phones. the phones cost $60 each to produce. a salvage company will buy the defective phones as they are for $30 each. it would cost signal $80 per phone to rework the phones. if the phones are reworked, signal could sell them for $120 each. assume there is no opportunity cost associated with reworking the phones. compute the incremental net income from reworking the phones.

Answer 1

Number of defective cell phone produced = 1000.

Defective phones cost $30 each.

Cost of defective phones =30x1000=30,000.

Cost of producing 1000 cell phones = 60x1000=$60,000.

Cost of rework= 80x1000=80,000.

Rework phone sale value =120x1000=120,000.

Incremental net income = 120,000-80,000-30,000= $10,000.

The incremental net income from reworking the phones is $10,000.

Answer 2

We are asked to solve for the incremental net income from reworking the phones.
Number of items = 1000
Production Cost = 1000*$60 = $60,000
Salvage value = 1000*$30 = $30,000
Rework Cost = 1000 *80 = $80,000
Price when resold = 1000 * $120 = $120,000

Incremental Net = $120,000 + $30,000 - $60,000 -$80,000
Incremental Net = $10,000

The answer is $10,000.