Question

Harold Manufacturing produces denim clothing. This year, it produced 5,290 denim jackets at a manufacturing cost of $42.00 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 second-hand clothing shop for $8.00 each. Jackets can be disassembled at a cost of $32,200 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 5,290 jackets into only 2,950 jackets. The remaining pieces of fabric will be discarded. The cost of reworking the jackets will be $102,500, but the jackets can then be sold for their regular price of $45.00 each. Calculate the incremental income.

Answer 1

Answer:

An Incremental Income of $30,250 will result from reworking the damaged jackets.

Explanation:

Of the three alternatives available management has chosen the best alternative to assemble the good parts.

Therefore, Consider the additional costs and revenues resulting from reworking the damaged jackets.

Manufacturing Costs already incurred are sunk cost, therefore not relevant.

Sales (2,950×$45.00)                             $132,750

Cost of Reworking the Jackets             ($102,500)

Net Income/(Loss)                                    $30,250

An Incremental Income of $30,250 will result from reworking the damaged jackets.

Answer 2

Answer:please see answer below

Explanation:

Alternative 1 ----sell told a second hand shop

Incremental revenue=5,290*8= f $42,320

Incremental cost=0

Incremental incomea Revenue -cost =$ 42,320

Alternative 2,---disassembling and sell to recycler

Incremental Revenue=5290*11=58,190

Incremental cost 32,220

Incremental income Revenue-cost=58190-32220=$ 25,990

Alternative 3 Reworking to sell at normal price

Incremental revenue =45*2950= 132, 750

Incremental cost=102,500

Incremental income=132,750-102,500= $ 30250

Incremental income for the three alternatives is given as

Ist alternative to sell to second hand shop= $ 42,320

2nd alternative to dissemble and sell to recycler= $ 25,990

3rd alternatively rework to sell at regular price= $ 30,250