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 compared to selling them for scrap?
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 autos as scrap, they will receive 7000 * $8000 = $56,000,000. 
If they repair the autos and sell them, they will spend an additional $18,320,000 on repairs, bringing the total cost to $12,880,000 + $18,320,000 = $31,200,000. 
They will then sell the autos for $12,000 per unit, bringing their revenue to 7000 * $12,000 = $84,000,000. 
The net advantage of repairing the autos is therefore $84,000,000 - $31,200,000 = $52,800,000. 
Selling the autos for scrap would give them a net advantage of $56,000,000 - $12,880,000 = $43,120,000. Therefore, repairing the autos is the best choice, with a net advantage of $9,680,000.

Legendary Motors Has 7,000 Defective Autos on Hand,which Cost $12,880,000