Question

Legendary Motors has 7,000 defective autos on hand, which cost $12,880,000 to manufacture. Legendary can either sell these defective autos as scrap for $8,000 per auto, or spend an additional $18,320,000 on repairs and then sell them for $12,000 per unit. What is the net advantage to repair the autos compared to selling them for scrap?

Answer 1

Net advantage to repair the autos=$9,680,000

Step-by-step explanation:

For Scrap:

Total sale by selling defective pieces as scrap=$8,000*7000

Total sale by selling defective pieces as scrap=$56,000,000

For Repair:

Total sales by selling defectives after repair=$12,000*7000

Total sales by selling defectives after repair=$84,000,000

Additional Cost on repair=$18,320,000

Remaining on selling defectives after repair=Total Sales after repairing-Additional Cost on repair

Remaining on selling defectives after repair=$65,680,000

Net Advantage:

Net advantage to repair the autos=Remaining on selling defectives after repair-Total sale by selling defective pieces as scrap

Net advantage to repair the autos=$65,680,000-$56,000,000

Net advantage to repair the autos=$9,680,000