Question

Chang Industries has 2,000 defective units of product that have already cost $14 each to produce. A salvage company will purchase the defective units as they are for $5 each. Chang's production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. The incremental income or loss on reworking the units is:

Answer 1

$20,000 income

Step-by-step explanation:

Computation

Particulars Amount

Sale Value of corrected product= $42,000.00

(2,000 * 21)

Less : Costs of Correction = ($12,000.00)

(2000 * 6)

Less : Opportunity costs - Salvage Value Lost = ($10,000.00)

(2,000 * 5)

Incremental Revenue= $20,000.00