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:
A) $20,000 loss.
B) $20,000 income.
C) $12,000 loss.
D) $32,000 income.
E) $30,000 income.

Question

Quizplus · Accepted Answer

The incremental income is calculated as follows:Sales revenue from reworking the units: 2,000 units x $21 = $42,000Cost of reworking the units: 2,000 units x $6 = $12,000Salvage value of the defective units: 2,000 units x $5 = $10,000Incremental income: $42,000 - $12,000 - $10,000 = $20,000

Chang Industries Has 2,000 Defective Units of Product That Have