Question

Ahngram Corp. has 1,000 defective units of a product that cost $3.30 per unit in direct costs and $6.80 per unit in indirect cost when produced last year. The units can be sold as scrap for $4.30 per unit or reworked at an additional cost of $2.80 and sold at full price of $12.90. The incremental net income (loss) from the choice of reworking the units would be:________

a. $2,800.
b. $4,300.
c. $10,100.
d. ($2,800).
e. $0.

Answer 1

If the units are reworked, income will increase by $5,800.

Step-by-step explanation:

Giving the following information:

Number of units= 1,000

Sell as-is= $4.3

Rework cost= $2.8

Selling price= $12.9

Because the original cost will remain constant in both options, we will not take them into account.

Sell as-is:

Effect on income= 1,000*4.3= $4,300

Rework:

Effect on income= 1,000*(12.9 - 2.8)

Effect on income= $10,100

If the units are reworked, income will increase by $5,800.