Question

Chang Industries has 1,200 defective units of product that have already cost $13.20 each to produce. A salvage company will purchase the defective units as they are for $4.20 each. Chang's production manager reports that the defects can be corrected for $6.80 per unit, enabling them to be sold at their regular market price of $19.40. The incremental income or loss on reworking the units is: Multiple Choice $18,240 income. $10,080 loss. $8,160 loss. $15,120 income. $10,080 income.

Answer 1

$10,080 income

Step-by-step explanation:

The computation of incremental income or loss on reworking the units is shown below:-

Incremental income on reworking unit = Sales after reworking - Sales to salvage company - Incremental cost

= (1,200 × $19.40) - (1,200 × $4.20) - (1,200 × $6.80)

= $23,280 - $5,040 - $8,160

= $10,080 income

Therefore for computing the Incremental income on reworking unit we simply applied the above formula.