Question

Harold Manufacturing produces denim clothing. This year, it produced 5,150 denim jackets at a manufacturing cost of $41.00 each. These jackets were damaged in the warehouse during storage. Management investigated the matter and identified three alternatives for these jackets. Jackets can be sold to a secondhand clothing shop for $8.00 each.Jackets can be disassembled at a cost of $32,800 and sold to a recycler for $11.00 each.Jackets can be reworked and turned into good jackets. However, with the damage, management estimates it will be able to assemble the good parts of the 5,150 jackets into only 3,050 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $102,800, but the jackets can then be sold for their regular price of $45.00 each.Required:1. Calculate the incremental income.

Answer 1

Answer:

Incremental income from

alternative 1 = $ 41,200

alternative 2 = $ 23850

alternative 3 = $ 34,450

Explanation:

Data provided:

Number of denim Jackets manufactured = 5,150

Cost of each jacket = $ 41.0

Alternative 1:

Selling cost of the second hand clothes = $ 8

Therefore,

the incremental income generated from the alternative 1 = 5,150 × $ 8

= $ 41,200

Alternative 2:

Disassembling cost  = $ 32,800

selling cost of each jacket = $ 11

therefore, the incremental income generated from the alternative 2 = Income from selling the jackets to recycler - Disassembling cost

or

the incremental income generated from the alternative 2

= ($ 11 × 5150) - $32,800

or

= $ 23850

Alternative 3:

Reworking cost  = $ 102,800

selling cost of each jacket = $ 45

Number of jackets that can be sold = 3,050

therefore, the incremental income generated from the alternative 3 = Income from selling the jackets - reworking cost

or

the incremental income generated from the alternative 2

= ($ 45 × 3050) - $ 102,800

or

= $ 34,450