Legendary Motors has 7,000 defective autos on hand which cost $12,880,000 to manufacture. Legendary can either sell these defective autos as scrap for $8,000 per auto, or spend an additional $18,320,000 on repairs and then sell them for $12,000 per unit. What is the net advantage to repair the autos?
A) $84,000,000.
B) $18,320,000.
C) $9,680,000.
D) $56,000,000.

Question

Quizplus · Accepted Answer

If Legendary Motors sells the defective autos as scrap, they will receive a total of $8,000 x 7,000 = $56,000,000.

If they spend an additional $18,320,000 on repairs, they will have a total cost of $12,880,000 + $18,320,000 = $31,200,000. They can then sell the repaired autos for $12,000 x 7,000 = $84,000,000.

The net advantage to repair the autos is:

$84,000,000 - $31,200,000 = $52,800,000

Therefore, repairing the autos gives a net advantage of $52,800,000 compared to selling them as scrap. The answer is not listed exactly but C is closest.

Legendary Motors Has 7,000 Defective Autos on Hand Which Cost