Answer:
It is more profitable to sell the units for scrap.
Explanation:
Giving the following information:
Defective units= 16,000 units
Selling price dor scrap= $2.60
Reworked cost= $4.80 each
Selling price= $8.10 each.
If the units are sold as-is, the company will be able to build 16,000 replacement units for $5.50 each and sell them at the full price of $8.10 each.
The cost of 16,000 units produced is a sunk cost, therefore, it shouldn't be a part of the decision making.
Sell as it is:
Sell scrap= 16,000*2.9= 46,400
New units= 16,000*(8.10 - 5.50)= 41,600
Total income= $88,000
Continue processing:
Reworked sales= 16,000*(8.1 - 4.8)= $52,800
It is more profitable to sell the units for scrap.
