Ahngram Corp. has 1,000 defective units of a product that cost $2.70 per unit in direct costs and $6.20 per unit in indirect cost when produced last year. The units can be sold as scrap for $3.70 per unit or reworked at an additional cost of $2.20 and sold at full price of $11.10. The incremental net income (loss) from the choice of reworking the units would be: Multiple Choice $2,200. $0. $8,900. $3,700. ($2,200).

Question

Business

Patricky

16 November, 07:03

Ahngram Corp. has 1,000 defective units of a product that cost $2.70 per unit in direct costs and $6.20 per unit in indirect cost when produced last year. The units can be sold as scrap for $3.70 per unit or reworked at an additional cost of $2.20 and sold at full price of $11.10. The incremental net income (loss) from the choice of reworking the units would be: Multiple Choice $2,200. $0. $8,900. $3,700. ($2,200).

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Alvaro · Answer 1

the incremental net income from reworking the units would be $8,900

Explanation:

Consider the incremental costs and revenues arising on reworking the units

Note : Manufacturing costs already incurred on the defective units are sunk costs and are therefore irrelevant for this decision.

Sales (1,000*$11.10) $11,100

Less Costs to of reworking (1,000*$2.20) ($2,200)

Net Income $8,900

Therefore, the incremental net income from reworking the units would be $8,900