Chang Industries has 2,000 defective units of product that have already cost $14 each to produce. A salvage company will purchase the defective units as they are for $5 each. Chang's production manager reports that the defects can be corrected for $6 per unit, enabling them to be sold at their regular market price of $21. The incremental income or loss on reworking the units is:
A) $20,000 loss.
B) $20,000 income.
C) $12,000 loss.
D) $32,000 income.
E) $30,000 income.
B) $20,000 income.
Explanation: If the units are reworked:
Incremental revenue from reworking ($21 — $5) $16.00
Incremental cost to rework ………………………………… (6.00)
Net benefit per unit to rework ………………………………$10.00
Incremental income from reworking ($10 * 2,000 units)…… $20,000
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