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. Chang should:
A) Throw the units away.
B) Sell the units to the salvage company for $5 per unit.
C) Sell the units as they are because repairing them will cause their total cost to exceed their selling price.
D) Sell 1,000 units to the salvage company and repair the remainder.
E) Correct the defects and sell the units at the regular price.

Question

Quizplus · Accepted Answer

Correcting the defects costs $6 per unit, making the total cost $20 per unit ($14 + $6). Selling at the regular price of $21 results in a profit of $1 per unit, which is better than selling to the salvage company for $5 per unit.

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