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26 October, 23:30

MC Qu. 47 Chang Industries has ... Chang Industries has 1,400 defective units of product that have already cost $13.40 each to produce. A salvage company will purchase the defective units as they are for $4.40 each. Chang's production manager reports that the defects can be corrected for $6.60 per unit, enabling them to be sold at their regular market price of $19.80. The incremental income or loss on reworking the units is:

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  1. 27 October, 00:24
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    Incremental income = $12,320

    Explanation:

    Giving the following information:

    Units = 1,400

    A salvage company will purchase the defective units as they are for $4.40 each

    Process further = $6.6 per unit and sell for $19.8

    We need to calculate the effect on the income of both options and select the most profitable.

    Sell as-is:

    Effect on income = 1,400*4.4 = $6,160

    Process further:

    Effect on income = 1,400 * (19.8 - 6.6) = $18,480

    It is more profitable to rework the units and sell for $19.8 each.

    Incremental income = 18,480 - 6,160 = $12,320
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