Gordon Corporation inadvertently produced 10,000 defective digital watches.The watches cost $8 each to produce.A salvage company will purchase the defective units as they are for $3 each.Gordon's production manager reports that the defects can be corrected for $5 per unit,enabling them to be sold at their regular market price of $12.50.Gordon should:
A)Sell the watches for $3 per unit.
B)Correct the defects and sell the watches at the regular price.
C)Sell the watches as they are because repairing them will cause their total cost to exceed their selling price.
D)Sell 5,000 watches to the salvage company and repair the remainder.
E)Throw the watches away.

Question

Quizplus · Accepted Answer

Correcting the defects costs $5 per unit, making the total cost $13 per unit ($8 + $5). Selling at $12.50 results in a loss of $0.50 per unit. However, selling as-is for $3 results in a $5 loss per unit. Correcting and selling minimizes the loss.

Gordon Corporation Inadvertently Produced 10,000 Defective Digital Watches