Pasha Company produced 50 defective units last month at a unit manufacturing cost of $30.The defective units were discovered before leaving the plant.Pasha can sell them "as is" for $20 or can rework them at a cost of $15 and sell them at the regular price of $50.Which of the following is not relevant to the sell-or-rework decision?
A) $15 for rework
B) $20 selling price of defective units
C) $30 manufacturing cost
D) $50 regular selling price
E) All of these are relevant.

Question

Quizplus · Accepted Answer

The manufacturing cost of the defective units is not relevant because it is a sunk cost and cannot be recovered regardless of whether the units are sold as is or reworked. The relevant costs are the cost of rework and the potential revenue from selling the reworked units at a higher price. The selling price of the defective units and the regular selling price are also relevant factors in making the decision.

Pasha Company Produced 50 Defective Units Last Month at a Unit