A company must decide between scrapping or reworking units that do not pass inspection. The...
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A company must decide between scrapping or reworking units that do not pass inspection. The company has 13,000 defective units that cost $5.50 per unit to manufacture. The units can be sold as is for $3.40 each, or they can be reworked for $4.70 each and then sold for the full price of $8.90 each. If the units are sold as is, the company will be able to build 13,000 replacement units at a cost of $5.50 each, and sell them at the full price of $8.90 each. What is the incremental income from selling the units as scrap and reworking and selling the units? Should the company sell the units as scrap or rework them?
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