Question

he Hudson Corporation has 8,100 obsolete units of a product that are carried in inventory at a manufacturing cost of $162,000. If the units are remachined for $40,900, they could be sold for $73,000. Alternatively, the units could be sold for scrap for $28,100. The alternative that is more desirable and the total relevant costs for that alternative are:

Answer 1

It is more profitable to re-process the units. Income will increase by $4,000.

Step-by-step explanation:

Giving the following formula:

Number of units= 8,100

Re-process the units:

Total cost= $40,900

Selling price= $73,000

Sold as-is:

Selling price= $28,100

We will conduct an incremental analysis, therefore the first manufacturing costs should not be taken into account. They remain constant in both options.

Re process:

Effect on income= 73,000 - 40,900

Effect on income= $32,100 increase

Sold as-is:

Effect on income= $28,100 increase

It is more profitable to re-process the units. Income will increase by $4,000.