Answer:
The correct answer is:
$17,280 income
Explanation:
First, let us lay out the relevant information:
Total defective units = 1800
salvage company price per unit = $4.80
Total income expected from salvage company = 4.8 × 1800 = $8,640
Reworking cost per unit = $6.20
selling price per unit after reworking = $20.60
Net selling price per unit after reworking = selling price - reworking cost
= 20.60 - 6.20 = $14.40
∴ Total income from selling after reworking = 14.4 × 1800 = $25,920
To calculate for the increment or loss on the income gotten from both options, we will calculate the difference between both options as follows:
Increment or loss on income from reworking = total income from reworking - total income from salvage company
= 25,920 - 8,640 = $17,280 income. <em>(note that a loss is not made from reworking because the total income from reworking is greater than that gotten from the salvage company)</em>
