A company has the choice of either selling 600 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per unit for overhead, and then sell the rebuilt units for $5.00 each. What is the amount of incremental income (loss) from rebuilding?
A) $3.00 per unit.
B) $(3.00) per unit.
C) $7.00 per unit.
D) $(0.60) per unit.
E) $0.60 per unit.

Question

Quizplus · Accepted Answer

The incremental income from rebuilding is calculated as the difference between the selling price of rebuilt units and the total incremental costs of rebuilding. The selling price is $5.00 per unit, and the total incremental costs are $0.60 (materials) + $1.00 (labor) + $0.80 (overhead) = $2.40 per unit. Therefore, the incremental income is $5.00 - $2.40 = $2.60 per unit. Since they could sell the defective units for $2.00 each without rebuilding, the net incremental income is $2.60 - $2.00 = $0.60 per unit.

A Company Has the Choice of Either Selling 600 Defective