Question

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 revenue from rebuilding?

Answer 1

Answer: Incremental revenue =360

Given:

N=600 (number of defective units)

P1=$2 (price if not rebuilt)

P2=$5 (price after rebuilt

X=.60+1.0+.80=2.4 (incremental costs)

R1=600(2)=1200

R2=600(5)-600(2.4)

R2=3000-1440

R2=1560

Incremental revenue is computed as:

R2-R1

1560-1200

360