Question

A company must decide between scrapping or reworking units that do not pass inspection. the company has 44,000 defective units that have already cost $298,000 to manufacture. the units can be sold as scrap for $176,400 or reworked for $223,500 and then sold for $421,600. if the company decides to rework the units, incremental income equals: multiple choice a.$21,700. b.$198,100. c.$(99,050). d.$46,200. e.$245,200.

Answer 1

To calculate the incremental income if the company decides to rework the units, compare the costs and revenues of both options. The incremental income if the company decides to rework the units is $198,100.

Step-by-step explanation:

To calculate the incremental income if the company decides to rework the units, we need to compare the costs and revenues of both options.

Option 1: Selling as scrap - The company can sell the 44,000 defective units as scrap for $176,400.

Option 2: Reworking and selling - The reworking cost for the units is $223,500 and the units can be sold for $421,600.

The incremental income is calculated by subtracting the total cost of reworking from the total revenue generated by selling the reworked units:

Incremental income = Revenue from reworked units - Cost of reworking

Incremental income = $421,600 - $223,500 = $198,100

Therefore, the incremental income if the company decides to rework the units is $198,100.