Question

Garcia Company has 10,400 units of its product that were produced last year at a total cost of $156,000. The units were damaged in a rainstorm because the warehouse where they were stored developed a leak in the roof. Garcia can sell the units as is for $3 each or it can repair the units at a total cost of $18,400 and then sell them for $7 each. Calculate the incremental net income if the units are repaired

Answer 1

$23,200

Step-by-step explanation:

Alternative 1 Alternative 2 Incremental

no repairs repair units revenue

sales revenue $31,200 $0 ($31,200)

repair costs $0 -$18,400 ($18,400)

revenue from $0 $72,800 $72,800

selling repaired units

total $23,200

Incremental revenues refer to the extra or additional revenues generated by a business activity or transaction. In this case, repairing and then selling the damaged units would increase income by $23,200.