A company has the choice of either selling 600 defective units as scrap or rebuilding them. The company could sell the defective units as they are for $2.00 per unit. Alternatively, it could rebuild them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per unit for overhead, and then sell the rebuilt units for $5.00 each.
- What is the amount of incremental cost from rebuilding?
A) $0.60 per unit.
B) $7.00 per unit.
C) $2.40 per unit.
D) $5.00 per unit.
E) $3.00 per unit.

Question

Quizplus · Accepted Answer

The incremental cost from rebuilding is calculated as follows:

Total Incremental Cost = Materials + Labor + Overhead
Total Incremental Cost = $0.60 + $1.00 + $0.80
Total Incremental Cost = $2.40 per unit

Therefore, the best choice would be to rebuild the units and sell them for $5.00 each, as the profit per unit would be $2.60 ($5.00 - $2.40) compared to only $2.00 if sold as scrap.

A Company Has the Choice of Either Selling 600 Defective