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iren [92.7K]
3 years ago
8

Chang Industries has 2,500 defective units of product that have already cost $14.50 each to produce. A salvage company will purc

hase the defective units as they are for $5.60 each. Chang's production manager reports that the defects can be corrected for $5.50 per unit, enabling them to be sold at their regular market price of $22.00. The incremental income or loss on reworking the units is:
Business
1 answer:
Lubov Fominskaja [6]3 years ago
7 0

Answer:

$27,250

Explanation:

The computation of incremental income or loss on reworking the units is shown below:-

For computing the incremental income or loss on reworking the units first we need to follow some steps which is shown below:-

Incremental revenue per unit = Selling price after rework - Selling price as scrap

= $22.00 - $5.60

= $16.40

Total Incremental Revenue = Incremental revenue per unit × Total defective units

= $16.40 × 2,500

= $41,000

Total rework costs = Total defective units × Defects per unit

= 2,500 × $5.50

= $13,750

Now,

Incremental income or loss on reworking the units = Total Incremental Revenue - Total rework costs

= $41,000 - $13,750

= $27,250

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