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 the Chairs at a cost of $30 per chair; Billings will be able to sell the repaired chairs for $90 per unit. Should
Billings 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 after repair, compared to $50 as is, increases revenue by $40 per chair. For 100 chairs, this results in a $4,000 increase in revenue ($40 x 100). However, the repair costs $3,000 ($30 x 100), leading to a net increase in operating income of $1,000 ($4,000 - $3,000).

Billings Corporation Has 100 Defective Chairs in Stock Which Can