Question

Signal mistakenly produced 1,450 defective cell phones. The phones cost $64 each to produce. A salvage company will buy the defective phones as they are for $32 each. It would cost Signal $82 per phone to rework the phones. If the phones are reworked, Signal could sell them for $148 each. Assume there is no opportunity cost associated with reworking the phones. Compute the incremental net income from reworking the phones.

Answer 1

Answer:

Incremental income from reworking the phone   is $49,300

Explanation:

                         Scrap              Rework

Sales                $46,400          $214,600

                        (32 * 1,450)      (148 * 1,450)

- Rework costs       0                   $118,900

                                                  (82 * 1,450)

Profit                 $46,400            $95,700

Incremental income from reworking the phone  

= $95,700 - $46,400

= $49,300