Question

Harold Manufacturing produces denim clothing. This year, it produced 5,200 denim jackets at a manufacturing cost of $42.00 each. These jackets were damaged in the warehouse during storage. Management investigated the matter and identified three alternatives for these jackets. Jackets can be sold as is to a secondhand clothing shop for $7.00 each. Jackets can be disassembled at a cost of $32,000 and sold to a recycler for $12.00 each. Jackets can be reworked and turned into good jackets. However, with the damage, management estimates it will be able to assemble the good parts of the 5,200 jackets into only 3,030 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $102,700, but the jackets can then be sold for their regular price of $44.00 each.

Calculate the incremental income.

Answer 1

Step-by-step explanation:

Alternative 1

Incremental Revenue - 5,200*7= *36,400

Incremental income $36,400

Alternative 2

Incremental Revenue - 12*5,200 = 62,400

Incremental Cost (32,000)

Incremental income 30,400

Alternative 3

Incremental Revenue - 3030*44 = 133,320

Incremental Cost (102,700)

Incremental income 30,620

he first alternative is the best with the highest incremental income