Warner Company has some material that originally cost $41,500.The material has a scrap value of $21,600 as is, but if reworked at a cost of $4,600, it could be sold for $29,100.What would be the incremental effect on the company's overall profit if it is reworked?
A)$17,000 decrease.
B)$38,600 decrease.
C)$2,900 increase.
D)$24,500 increase.

Question

Quizplus · Accepted Answer

The incremental effect on profit from reworking the material is calculated by comparing the net proceeds from selling the material as is versus after reworking. Selling as is would yield $21,600. Reworking costs $4,600 and the material could then be sold for $29,100, resulting in a net of $29,100 - $4,600 = $24,500. The incremental increase in profit is $24,500 (reworked) - $21,600 (as is) = $2,900.

Warner Company Has Some Material That Originally Cost $41,500