Chang Industries has 2,000 defective units of product that have already cost $14 each to produce.A salvage company will purchase the defective units as they are for $5 each.Chang's production manager reports that the defects can be corrected for $6 per unit,enabling them to be sold at their regular market price of $21.The incremental income or loss on reworking the units is:
A)$20,000 loss.
B)$20,000 income.
C)$12,000 loss.
D)$32,000 income.
E)$30,000 incomE.

Question

Quizplus · Accepted Answer

The incremental income is calculated as follows:Revenues from reworking: 2,000 units x $21 = $42,000Costs of reworking: 2,000 units x $6 = $12,000Incremental income: $42,000 - $12,000 = $30,000

Chang Industries Has 2,000 Defective Units of Product That Have