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BT&T Corporation manufactures telephones.Recently,the company produced a batch of 600 defective telephones at a cost of $9,000.BT&T can sell these telephones as scrap for $9 each.It can also rework the entire batch at a cost of $6,500,after which the telephones could be sold for $20 per unit.
-If BT&T reworks the defective telephones,by how much will its operating income change?
A)Increase by $500
B)Decrease by $1,600
C)Increase by $5,500
D)Decrease by $6,500

Question

Quizplus · Accepted Answer

If BT&T sells the defective telephones as scrap, it will earn 600 x $9= $5,400.

If it reworks the entire batch, it will incur an additional cost of $6,500, but it will earn 600 x $20 = $12,000 from selling the reworked telephones.

Therefore, the operating income from reworking the batch would be $12,000 - $6,500 = $5,500 higher than selling the defective telephones as scrap.

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