Question

Blake’s Manufacturing sells unfinished wood pieces for $150 each. The manager reported 280 defective wood pieces in inventory, which cost $20 to refabricate. The manager can sell the defective pieces for $30 each, or process the wood further for $10 each, and then sell them for the standard sales price. What is the total incremental income from further processing?

Answer 1

$30,800

Step-by-step explanation:

This can be calculated as follows:

Standard price revenue = $150 × 280 = $42,000

Original cost = $20 × 280 = $5,600

Defective sales revenue = $30 × 280 = $8,400

Extra processing cost = $10 × 280 = $2,800

Actual revenue forgo from defective sales = Defective sales revenue - Extra processing cost

Actual revenue forgo from defective sales = $8,400 - $2,800 = $5,600

Total incremental income = Standard price revenue - Original cost - Actual revenue forgo from defective sales

Total incremental income = $42,000 - $5,600 - $5,600 = $30,800

Therefore, the total incremental income from further processing is $30,800.