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Fancy Furniture produced a batch of 2,000 coffee tables at a cost of $355,000.It was discovered that the entire batch was finished improperly.Fancy can sell the tables as seconds for $305,000 or spend an additional $315,000 to refinish them and sell them for $605,000.
-In deciding whether to rework the tables or sell them as is,management should:
A)Compare the $305,000 proceeds from the sale of the tables as is,with the $355,000 cost of the tables.
B)Compare the $605,000 possible revenue from refinished tables with the total cost of $355,000 plus $315,000 to refinish.
C)Compare the $315,000 cost to refinish the tables with the incremental revenue of $300,000 if the tables are refinished.
D)Eliminate any alternative that results in a loss on the sale of the product.

Question

Quizplus · Accepted Answer

The correct approach is to compare the additional cost of refinishing ($315,000) with the additional revenue gained from doing so ($300,000 from selling at $605,000 instead of $305,000). This incremental analysis helps in deciding whether the refinishing adds value.

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