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 income (loss) from rebuilding?
A) $(3.00) per unit.
B) $3.00 per unit.
C) $(0.60) per unit.
D) $0.60 per unit.
E) $7.00 per unit.

Question

Quizplus · Accepted Answer

The incremental income from rebuilding is calculated as the selling price of rebuilt units ($5.00) minus the total incremental costs ($0.60 + $1.00 + $0.80 = $2.40) and the scrap value ($2.00). This results in $5.00 - $2.40 - $2.00 = $0.60 per unit.

A Company Has the Choice of Either Selling 600 Defective