Billings Corporation has 100 defective chairs in stock which can be sold in their present condition for$50 each. The defective chairs cost Billings $60 to manufacture. Billings is considering repairing thechairs at a cost of $30 per chair; Billings will be able to sell the repaired chairs for $90 per unit. ShouldBillings repair the defective chairs?

Question

Quizplus · Accepted Answer

Repairing each chair costs $30, raising the total cost per chair to $90 ($60 original cost + $30 repair cost). Selling at $90 means breaking even on the per-chair cost, but selling the defective chairs as-is at $50 each results in a $10 loss per chair ($60 cost - $50 sale price). Repairing avoids this $10 loss per chair across 100 chairs, improving overall operating income by $1,000.

Billings Corporation Has 100 Defective Chairs in Stock Which Can