Question

Ahngram Corp. has 1,000 defective units of a product that cost $3.70 per unit in direct costs and $7.20 per unit in indirect cost when produced last year. The units can be sold as scrap for $4.70 per unit or reworked at an additional cost of $3.30 and sold at full price of $14.10. The incremental net income (loss) from the choice of reworking the units would be:

Answer 1

Reowrk:

Effect on income= $10,800 increase

Step-by-step explanation:

Giving the following information:

Number of units= 1,000

Sell as-is:

Selling price= $4.7

Rework:

Incremental cost= $3.3

Selling price= $14.1

We need to calculate the effect on the income of both options:

Sell as-is:

Effect on income= 4.7*1,000= $47,000 increase

Rework:

Effect on income= 1,000*(14.1 - 3.3)

Effect on income= $10,800 increase