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19 September, 10:37

A company has the choice of either selling 600 defective units as scrap or rebuilding them. the company could sell the defective units as they are for $2.00 per unit. alternatively, it could rebuild them with incremental costs of $0.60 per unit for materials, $1.00 per unit for labor, and $0.80 per unit for overhead, and then sell the rebuilt units for $5.00 each. what is the amount of incremental revenue from rebuilding?

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  1. 19 September, 14:35
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    Answer: Incremental revenue = 360

    Given:

    N=600 (number of defective units)

    P1=$2 (price if not rebuilt)

    P2=$5 (price after rebuilt

    X=.60+1.0+.80=2.4 (incremental costs)

    R1=600 (2) = 1200

    R2=600 (5) - 600 (2.4)

    R2=3000-1440

    R2=1560

    Incremental revenue is computed as:

    R2-R1

    1560-1200

    360
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